Read This Now

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Tue, Aug 30, 2011 - 4:21pm

No catchy title to this update. I just want you to read and ponder this post. Then, plan your trades accordingly.

Let's start with silver where the technical picture is more clear, at least in the traditional sense. Take a look at the chart below:

I've shown this chart several times in the past week so it should look familiar. Something new caught my eye today. Have you seen the new OI numbers? Our friend, "Tesla" has taken it upon himself to update the comments section with the latest numbers each afternoon. (Thanks, Tesla!) Keep in mind that the OI numbers are always basis the close yesterday. So, today's numbers show us the OI from Monday. That said, the number is once again amazingly low at 112,795 contracts. Again, as a reference, the OI in late April was approaching 150,000. Fully 20-25% more! Now stick with me on this. Maybe I should lay this out chronologically to make it easy to follow? OK, here goes:

1) Since silver bottomed around $34 in early July, the channel I've drawn has contained price.

2) Note that on two occasions, 7/13 and 8/19 (points 1 and 2 on the chart), silver decisively broke through the mid-line and proceeded to move sharply toward the top line.

3) Total OI on 7/13 was about 113,000 contracts. By the peak on 8/5, it had risen to about 119,000.

4) Total OI on 8/19 was nearly 116,000 contracts. At least week's peak, it had risen to nearly 122,000.

5) Today's OI is all the way back down below 113,000.

6) Look closely. Price once again sits poised to burst through the mid-line, which is near $42.

Conclusion: Watch price and OI very closely for the next 48 hours. IF silver accelerates through $42 on rising open interest, there is a very high likelihood that it is once again making a move toward the top of the channel. A move that corresponds in magnitude to the previous two would take silver to 45.50-46.00, perhaps as early as next week.

Now let's move on to gold. When I say it's not as "traditional" technically, it's because I'm using this crazy, reverse pennant as a forecasting tool. I'm not sure you're going to find the "reverse pennant" in any books about TA but I'm quite sure that none of those books ever anticipated the end of the dollar, either.

Similar to silver, gold currently sits very close to the midline of the pattern. Note that the previous two occasions when gold broke through the midline (mid July and early August), gold proceeded to ride the upper trendline for about two weeks before falling back. IF gold can once again break through the midline, it will likely charge toward the top line again. This would take the price to near $2000. The OI numbers in gold are similar to silver, too. After peaking at 532,000 last Monday, total OI as of yesterday is all the way back to 501,000. A drop of almost 6% in one week!

Conclusion: We may be on on the verge of another massive rally in gold. Your signal will first be a move through yesterday's high of 1841.50 and then a burst through the midline, currently in the area around 1850. Should gold move conclusively through 1850, it should move to new highs in relatively short order and then continue to make new highs through mid-September.

WARNING: Don't go getting overly excited and carried away at this moment. Nothing is pending until the metals break through those midlines. The open interest numbers suggest that the breakthroughs will come in the next 24-48 hours. They may not. If they don't, I will continue to monitor these charts until they do.

I feel that this is pretty important info so I plan to leave it up all night as the lead, above-the-fold story. I will probably leave it up tomorrow, too. Be sure to refresh the homepage from time to time if you're looking for updates as they will be attached as addenda to this post. TF

9:15 EDT UPDATE:

Sort of a bland trade this morning. The metals tried to rally overnight but they were beaten back at the regular, appointed hour of 3:00 am EDT. It appears, at this moment, that the metals will struggle to trade higher today. 1841.50 is still acting as a resistance point for gold and silver has yet to reach 42, yet alone 42.30. Let's just sit back and watch and see what the day brings us.

A couple of other things...First, this silver update from GoldCore via ZH is worth your time:

https://www.zerohedge.com/news/silver-ready-breakout-technicals-and-fundamentals-suggest-50oz-early-autumn

Second, a friendly reader sent me this chart of the open interest in silver since March. I have neither the time, inclination or technical know-how to superimpose the actual price of silver onto this chart. However, it would probably be a rather insightful thing to do. Anyone want to take a stab at it?

That's all for now. TF

10:50 EDT UPDATE:

This is certainly something to watch over the next hour or so.

About the Author

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  620 Comments

TheGoodDoctor margaritatime
Aug 30, 2011 - 11:23pm

@margaritatime Nice post in

@margaritatime Nice post in response to redwood. I am now convinced that they will have to revalue the currency to gold. It is likely the only solution that they will have to ease the debt burden. Not sure of the when part. But I think it will be after QEIII and after more pain. I think this is why there have been no meaningful cuts in spending. So, spend into oblivion and then revalue the currency to gold.

Also, isn't it the first country that does this the one that benefits the quickest? Because eventually we will see more countries doing what the Bank of Japan or the Swiss National Bank have done. The US wants to devalue the currency of that I am certain.

Basically the banks and the CBO have said that there will be little to no growth at least through 2012. Also, the Fed has said it won't raise interest rates through 2013. So, it's just more of the same for the time being.

¤
Aug 30, 2011 - 11:24pm

About Fort Knox

Video unavailable
Video unavailable
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llaettner
Aug 30, 2011 - 11:29pm

@Jim-M Thanks for sharing

Not to assume your knowledge or lack thereof with daily resetting leverage, but here goes, when you use daily performance 2x and 3x leveraged funds, you are subject to leverage trap and the price will decay as it continues to be rebalanced daily. AGQ magnifies greatly when it begins the Titan's climb but it falls hard, I wouldn't recommend holding it for more than a few days at a time, its designed for day traders, this is why so many people are suing these guys, AGQ is a loaded gun.

Watching Silver, it will hug the Bollinger Band when its on a run up or down, usually this get it into an Overbought position on STOCHRSI (at Silver is right now on the 8 hour chart) and beware. When I get this signal, I am fishing for a bargain, usually R2 to R3 on a 5 hour Pivot Fibo chart, and if STOCHRSI nears 0, then its oversold and usually a short term bounce is 100% assured.

If you watch Bollinger Bands, as the price moves sideways and the bands narrow, a breakout is imminent, too much detail to bring into a single post. . .

rjsand ¤
Aug 30, 2011 - 11:33pm

About Fort Knox

DarkPurpleHaze,

thx for the videos, I'm watching them now. : ) What did you think about Bix's "Road to Roota" Theory that TBTB have been planning to go back to a Gold Standard all along?

Jim-M doctornowhere
Aug 30, 2011 - 11:36pm

@doctornowwhere about "This time is diffeent..."

That which you say conflicts with me, it does.

One the one hand, we have seen that treasuries are still a safe haven, but no longer the overwhelmingly predominant one. So it is at least a little different in that respect.

The question is whether it's different enough to change the action. And whether you're weighing the proper factors that caused the PM fall... i.e. - was it the recession or the fear of financial market melt-down that caused PM's to fall with equities?

If you're asking what a recession will do to PM prices, I'd say not a lot in isolation. Me thinks it's the Fed's response to a recession that determines which way PM's go.

Then, you must ask whether or not the Euro collapse fear is part of that potential market move. If yes, then it would be a predominantly safe haven response and treasuries still get some or much of the action, although possibly reduced compared to 2008.

If I had to guess, I'd say gold still goes down initially due to any safe haven market reaction, but not so far as before and not lasting so long. Unless, of course, the fear is quickly discovered to be a REAL melt-down event, in which case we get our $5700 gold (or whatever, price won't matter).

So, this time isn't different, but that might not be the right question. Maybe we should be asking is this time the same as the last?

- Jim M.

Anonymous
Aug 30, 2011 - 11:42pm

Removed comment

Removed comment.

Jim-M llaettner
Aug 30, 2011 - 11:43pm

@llaettner reg. AGQ's price decay

Yes, I'm aware of that and should have mentioned it. Kind of mixed two distinct trading time frames into a single strategy, I think. Holding longer likely works better with the long-dated options, although I've still made better profits with AGQ than I could with SLV without leverage... so long as the trend is up. :-)

I guess I gravitate toward the leverage b/c I know we got a bull market that, unless I really blow the entry point, *shouldn't* take more than 2-3 weeks to make a good profit. I also have some IRA's that I can't buy options with, so I'm *really* lean toward AGQ/UGL on those. So far, so good. Man, that strikes me as a bad thing to say - and do!!

Appreciate the heads-up and other TA guidance. I follow you on most of it, but I can't really watch it most of the time. Looking for Utopian easy money system... or at least one I can sell on late-night infomercials to sheeple.

FriedEggs
Aug 30, 2011 - 11:43pm

Maravich44

Are you refering to - Gary 'Spaceman' Bell from AM640 Toronto Radio? That may have been me... :)

I was hoping to get more people tuned into his radio broadcast - i posted the link to the August 20, 2011 program on a thread i started several weeks ago in the Conspiracy Thread just dedicated to his radio show...

I highly recommend you and everyone else that has an open mind to tune in and just listen in the background while you surf and read (no video content to watch)...

August 27, 2011 just got posted by 'Cosmicchippos channel' on youtube if your interested in the rest of the radio cast (15 - 15min parts) He does talk about the financial crisis...I am going to listen to them all right now...(on vacation)

I hope that ScottJ has the opportunity to take a listen:) He starts off talking about the #3...

Video unavailable
llaettner
Aug 30, 2011 - 11:45pm

Gold/Silver Ratio

After my previous posting, I thought of one other safety net for the Silver trade, if you use netdania for charting, you can pull up Gold/Silver ratio, it is tracked as an asset. If you are a fan of STOCHRSI, you can analyze this ratio for whatever your favorite period of time, and you can detect oversold/overbought conditions as Gold relates to Silver, recently we could tell that gold was becoming overbought compared to silver, and it eventually broke, leading to 44, unfortinuately the exuberance also drove STOCHRSI to 100 over several days, then the plummet back. Silver investors are crazy. . . I know, I am one.

margaritatime
Aug 30, 2011 - 11:47pm

Good Doc

Yeah, I agree with you. I think a slow downward controlled spiral is the intent. A slow controlled upward spiral of PMs - like cranking down a vice of valuing one, while devaluing another. Eventually it will happen when a revaluation; whether against a basket of currencies backed against gold, or a new USD backed against gold will occur. Otherwise, they will repeat what we have - except it will crash decades sooner.

No doubt this will be after a QE-whatever, but I don't think that even the Fed, CBO, IMF or any other 3-letter acronym that overseas economics, will be ready for a black swan that catches them off guard. Markets can do weird things (aside manipulation), people are even more unpredictable, a global macro can happen like getting broadside on a sunny Tuesday morning commuting to work. And to be honest with you.. I really don't think there is an orchestrated plan. At least not on the scale that has worked out the details.. which I can assure you will be a thorn in their ass, and likely partial, if not full..failure.

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