A Rally Cometh?

Tue, Oct 11, 2011 - 6:29pm

Though I am still guarded in my short-term optimism, I have been itching to give you a rally thread. A couple of items have come together today so I'm ready to stick my neck out just a bit.

Before we begin, I'm not talking about THE rally. I'm talking about A rally. The metals still have lots of work to do in order to generate sufficient speculator interest to really get things rolling. However, all trips begin with the first steps and I think that we are close to embarking on a fun, little journey.

First of all, look at the HUI. After having been savagely beaten for the past two weeks, it has bounced off of what looks to be stout support around 500. It went out on its highs today and rests tonight at its highest level in over a week. This is very encouraging.

Even more encouraging are the latest Open Interest numbers. During the trading day yesterday, gold rose about $35 and silver closed nearly unchanged. However, gold open interest declined by about 2300 contracts while silver expanded by about the same number. How can this be, you ask? Actually, it makes perfect sense when you dig into the numbers and, while keeping in mind that this is primarily guesswork based upon experience, begin applying some common sense.

In gold, the change in OI was primarily due to a 2100 open contract reduction in the Dec11. This is short-covering, my friends, most likely of The Cartel variety. From this, we can conclude a number of things:

1) Just more proof that this latest $200 beatdown in gold was orchestrated by The Cartel in order to allow themselves room to cover contracts at lower prices.

2) Net short-covering (buying) by The Cartel yesterday provided the impetus for the $35 gain.

3) Net short-covering (buying) created conditions of more buyers than sellers causing the gain.

4) A short-covering rally of this magnitude is a clear signal that the selling pressure of the specs is nearly exhausted. In other words, those who were going to sell have now sold.

All in all, this is a reason to be short-term bullish.

In silver, the picture is the same but different. Yesterday's OI expanded by about 2200 contracts and almost all of the expansion was in the Dec11 and Mar12 contracts. However, silver was unchanged. Again, how can this be? It's quite simple, actually. Nearly every new spec buyer was countered by a new seller. Believe it or not, this is actually a "normal" market in silver. Specs buy and The Cartel supplies the fresh paper. It's worked that way for years. The odd thing is the apparent willingness of the shorts to add to positions ahead of the CFTC meeting scheduled for 10/18. Here's what I'm thinking:

1) Total volume was very light yesterday, around 29,000 contracts. Maybe it wasn't JPM supplying the fresh paper. It could have been some other seller or any of the "raptors", as Ted Butler calls them.

2) Silver was up almost $1 today. If I'm right, then the OI numbers we get tomorrow afternoon (again, the numbers tomorrow reflect today's close) will show a total OI that is nearly unchanged vs Monday.

3) Why would that be? Because today's rally in silver was caused by some additional new longs (more OI) and some fresh short-covering (less OI). This would produce a $1 rally on very little OI change.

Anyway, what does all this mean?

The miners are rallying. Many here feel, as do I, that moves in the miners precede moves in the metals.

Open interest looks to have bottomed. Spec selling has ended and spec long money looks to be moving back into the metals. Short-covering by The Cartel looks to be intensifying as they fear that they will not be able to shove prices much lower.

Now, let's look at the charts. First, gold. Note that gold is pressing up against significant resistance between 1680 and 1705. Should it clear that area...and I have a sneaky suspicion that it soon will...your next target is 1755-1765. That may not sound like much but that would be a $100 rally from where we stand this evening. Not too shabby. Additionally, a rally that carries gold back to 1765 may extend through there and, by extending higher, would excite more spec longs back into the pit. Gold could trade back above 1800 very quickly.

Once again, silver is the same yet different. Technically, it is trying to rally but it is going to be really hard for it to get through 33-33.85. Really hard. In fact, its best chance may be to sneak by that entire area in a day or two. Never let The Cartel know what hit them. Either way, IF it can get through 34...and that's a big IF...it will move quickly toward $37 and, from there, be poised for a late-autumn rally back toward the highs of August.

OK, so there you go. Like I said, I've been itching for a rally and it certainly looks like we are on the edge of one. Yes, I know I've been warning you about the potential for drops to $1500 and $24. That potential still exists. However, please keep in mind that I can only work with current information. Situations change and we have to be able to adapt and adjust to the changes. For now, many signs point to a rally. Let's just see what happens.

Have a great evening and a fun Wednesday. TF

9:50 a.m. EDT UPDATE:

The Battle Is On.

After a strong overnight rally, The Evil Empire is actively suppressing price this morning. Note that two forays into the Max Q resistance area have been repelled by The Forces of Darkness. The Evil Ones saw gold approaching 1700 and silver above 33 and knew they had to act. Knowing that today is Wednesday, which means that they have until next Tuesday to cover any new short positions, Satan's Spawn have been actively supplying fresh paper metal this morning. The keys to watch from here are the support levels I've drawn below. Holding those levels will indicate that short-term specs are returning to the market. Getting that money back is vital to turning the charts higher and forcing our Tyrannical Oppressors to retreat to higher ground.

More later. TF

About the Author

turd [at] tfmetalsreport [dot] com ()


Oct 11, 2011 - 6:38pm

Holding Out

Thanks, TF!

I'm a little upside down on a few purchases of ASE at $40, but I'm very happy with my current stash. I'm waiting for $28/$24 before adding more physical. As a newbie, I'm personally hoping for volatility to the downside to catch up. :)

I Run Bartertown
Oct 11, 2011 - 6:40pm

Hi Turdtown!

First, I'm nowhere near my target - no rallies please - just her royal Blytheness squatting down on silver to chase it lower ;-) please...

OK, my turn to intro myself and stop lurking. I’ve been reading and learning here since the blogspot days when every 3rd comment was about a post that didn’t go through. My opinions on a few posters have changed more than once, and it seems a bit voyeuristic to always read and not even say hi to Turdtown. I’m coming from more of a SHTF ‘prepper’ background than a trader background, but the market education I’ve been receiving from the good people here (and their many links) is great. Thanks!

I’d like to tip the hat first to Turd. Please don’t ever get discouraged about complaints about calls or timing of trades – I’m not going to do any of it and I find tremendous value in the community you’ve built. From the tradition of ‘first’, to the voluminous discussions of salmon and ham – it’s a cool place. I can’t name another on the internet that has more meaningful discussion and less pointless flaming.

Having said that, I’ll confess that I’m from the ‘harsher’ half of the dichotomy we seem to be witnessing recently. I’m glad the ‘kumbaya’ types have a presence – and our host seems to lean that way, so I’ll not rage on about my personal desires for TPTB’s fates’. I do, however, think that as each of us tries to develop a sense of ‘how awake are my peers?’, we each could use a sense of how many ‘out there’ might think our way.

So I’m raising up a flag to be counted on my ‘side’ of the divide. I’ll state that a) government thugs have made a choice, and they are not innocent or excused by ‘duty’; b) leftists have implemented most parts of some very old communist plans for us – and it’s us or them. I think America (and I take no joy in saying this) is a carcass that various groups (think La Raza, etc.) will pull chunks out of in time. The constituents of Barney Frank and Maxine Waters and Barry Soetero will never be my countrymen. They are my enemy in a way that no Iranian could EVER hope to be my enemy. That’s my $0.02; and thank you all for your contributions. There’s really no other site like this.

silver foil hat
Oct 11, 2011 - 6:41pm


oops, wrong thread.

Turd, your analysis jives with the options buyers in GLD for Nov and Dec calls.

I smell some volatility coming soon to the upside.

Oct 11, 2011 - 6:43pm
Oct 11, 2011 - 6:44pm
Oct 11, 2011 - 6:45pm


any thoughts to what silver will be at the end of 2015? and then another ten years at 2025?

Oct 11, 2011 - 6:50pm

@Ivars .... RE:- Your "I suggest" Quote

I would suggest distribute these 6 trillion straight to the people, that is about 20000 USD/head, and forbid (recipients) to use this money for debt repayments, only for spending in consumption. That could incrase money velocity and help economy to create value.
Sounds like an EXCELLENT idea to me !!!

Give me $20,000 (or even better GB£, but I'm not fussy) on the condition that I have to SPEND the money on goods rather than paying off my non-existent debt .... and you WILL see the velocity of that money increase to near-lightspeed on my way to the Local Coin Shop to create REAL value by buying Silver & Gold !


... The one small flaw in my cunning plan is the fear that this particular cripped old fart would probably get crushed by the LCS stampede of all the other fitter readers of this site. ... Still, I reckon I could probably sabotage at least a FEW of you other old farts by hacksawing part-way through your crutches or letting all the air out of your wheelchairs.



Oct 11, 2011 - 6:50pm


so if they are implemented in Jan, then we should expect more downs so they can get out of the way?

Oct 11, 2011 - 6:56pm

funny about that position limits story eh?

Could the waiting be nearly over? 'Cause the way I see it, the way-hay-ting is the haaardest paaart...

Ranting Andy: The Waiting

October 11, 2011

I wasn’t planning to write this morning, but as usual found something to RANT about.

Following the commencement of OPERATION PM ANNIHILATION just HOURS after the Labor Day holiday, the PAPER gold market has been put back into its box. That “box” is quite familiar to me, as I have been watching tick for tick for 9½ years, and see EVERYTHING the Cartel does.

As I’ve noted numerous times, the gold market ALWAYS seems to be falling, yet rises every year, just as the Dow ALWAYS seems to be rising, yet never goes anywhere.

Read the rest of this entry »

Tom Petty And The Heartbreakers - The Waiting
Oct 11, 2011 - 6:57pm

@Turd ... RE:- First Steps

However, all trips begin with the first steps ...

All journeys begin with the first steps ... However, all trips begin with the first mis-steps!

Sorry ! (Oh, No, he isn't !!!) ... I just couldn't resist the pun.

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