There He Goes Again

485
Mon, Oct 24, 2011 - 7:55pm

At some point, I guess I've got to stop and decide whether or not it's just wishful thinking.

About two weeks ago, I gave you this:

https://www.tfmetalsreport.com/blog/2658/rally-cometh

I'd been itching for a gold rally but, until now, it hasn't developed. In the post above, I called for a rally in the HUI to 560-580 and it made it to 560 before falling back to 500 last week. A sharp rally has it back to 538 tonight and it still looks like 580-600 is in the cards. That would be about a 10% rally from here.

But what's got me really worked up is the latest CoT survey. Remember how I always say that the only consistent way to make money trading the metals is to sell when all looks rosy and buy when all looks dreary? The tough part is to get yourself to actually follow that discipline as it goes against basic human nature. Put a different way, history has shown that you want to buy with the banks when the specs are selling. Additionally, you should sell when the specs are strongly buying. Now, back to that CoT survey. Note these week-over-week changes:

Large Specs long: -3901 contracts

Large Specs short: +3623 contracts

Small Specs short: +1878 contracts

The speculators (those consistently wrong) continue to rotate away from long to short.

Commercials (banks) long: +2592 contracts

Commercials short: -6733 contracts

The commercials (those consistently right) are covering shorts to and some are even going long.

Now, chew on this for a moment. The dreaded and evil BoA puts out a report that warns of further U.S. credit downgrades before year-end.

https://latimesblogs.latimes.com/money_co/2011/10/us-credit-rating-debt-downgrade-warning-merrill-sp-moodys-fitch.html

Hmmm. Do you recall what happened from 8/7 to 9/6? How about a $250 gold rally, primarily caused by massive bank short-covering, all of it following the initial U.S. downgrade from S&P. Think of that CoT survey again. Could the banks be trying to front-run the next downgrade?

So, let's just go ahead and put it on the record: I'm expecting a 10% rally in gold before 12/1/11. This gives us a minimum target area of 1780-1840. Let's split the difference and call it 1810 or about 10% UP from where we stand this evening. That type of rally corresponds with where we are on the charts, too:

Soon, we will burst through the tough resistance around 1700 and begin mounting this assault on the backs of continued bank buying as well as the short-covering of the misguided specs. If December plays out similar to Decembers past, gold will then finish the year somewhere between 1750 and 1800, continuing the trend of 20-25% annual returns.

I wish I could be as enthusiastic about silver but I'm not. Though I still expect a stellar 2012, the remainder of 2011 will find silver continuing to struggle with high margins and a pit bully named JPM that doesn't appear ready to begin covering its massive short position just yet.

So, there you go. Once gold closes above 1705, my confidence in this forecast will grow considerably. At that point, I'll look to buy some Dec11 calls. Maybe buy some outright or spread some 1700s vs some 1800s. We'll see. I'll keep you posted.

TF

9:50 am EDT UPDATE:

WOPR is in charge this morning as the PMs are being sold because of this headline:

https://www.zerohedge.com/news/ecofin-meeting-cancelled

Down goes euro. Up goes dollar. WOPR sees dollar up. WOPR sells gold and silver. Yawn.

Perhaps some human buying will emerge soon. At around 1630-35, the hourly chart holds the promise of a little reverse H&S bottom of off last week's test of support near 1600.

Hang in there and enjoy the ride. More later. TF

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  485 Comments

backseatdriver
Oct 25, 2011 - 11:27am

Ivars

In addition, I just went and bought a loaf of bread, PB, Jelly, a dozen eggs, 1lb of turkey, 1lb of coffee, Half and Half, put it all into one paper bag and paid 52.23...Plus a couple ladies items ;) Do you still hold fast that there wont be any inflation until 2015????

BSD

tread_w_care
Oct 25, 2011 - 11:29am

@Eric O Primer on Financial Repression

That is exactly the kind of thing we need on the 'Welcome Mat/New Members' forum that I posted about.

Not sure where you would put it but that should stand alone on its own Forum! So we don't lose it in the sands of time. Great, great reference post, should be a sticky!

JackPutter
Oct 25, 2011 - 11:31am
kenklaveEric Original
Oct 25, 2011 - 11:31am

Great contribution EO, as

Great contribution EO, as always. Rickards did say that he thought repression would not work. You are correct in pointing out the distinction between real and nominal GDP. The only thing I would add is that politically, real growth in GDP is likely necessary for the strategy to work. The populace will not tolerate 20+ years of this nonsense, when the policy becomes obvious. Turning to gold is one option. Political upheaval (riots even) is another. No one in power wants to see the latter.

Hammer
Oct 25, 2011 - 11:31am

It would be a great idea to

It would be a great idea to have a "Turd's Hall of Fame" section to keep memorable posts ?

¤
Oct 25, 2011 - 11:34am

A short term chart of...

...the rest of the week would be great. Any chance of getting a 3 day chart Ivars?

Sounds reasonable to me and would be invaluable to us all.

Thanks.

Oct 25, 2011 - 11:35am

Norcini's correlations

I think Dan makes a fair case, and todays divergence does not undermine the larger picture very much. His charts showed a number of anomalous days where the S&P and oil diverged, but overall the similarity is striking. The two charts are trading with a correlation level of over 70% (my estimate) for the past few months, which gets the attention of researchers in any field who want to look for a cause.

S& P 500 (charts from Norcini's blog ) Crude Oil

I read it as the EE simply must not let gas prices go up while everyone's pension balances are declining. That might wake up the sheep. Now, if Italy collapses, the EE may have bigger problems to worry about. Maybe we will break out of this correlation, as we would have minus the manipulation.

I love it that G & S are holding this morning's gains and not selling off as the hour ticks by!

DeltaCharlie
Oct 25, 2011 - 11:37am

Anyone what to take a shot at

Anyone what to take a shot at explaining why crude oil prices continue to move up, while the major indices are moving down?

Lovin' the gold/silver move!!!

Shill
Oct 25, 2011 - 11:41am

Inflation in the things we

Inflation in the things we need ( food, gas, clothing ect.) No inflation in the things you can't afford ( Housing ect. ) Except with this inflation, ( in the things we need ) Prices have quadrupled since 07 while housing has continued to fall.

Oh and your income continues too fall as well. Fun isn't it, you can thank the 2 useless congressional administrations that the same DOPES keep voting in time and time again hoping for a different result, when in fact its always the same result.

You and me get porked while the Fat cats still hold power and continue to do THE WRONG THING THE SAME THING over and over.

........ Go team Rah! Rah! Rah!

My team is better than your team Rah! Rah! Rah!

Hammer
Oct 25, 2011 - 11:41am

Wonder what the odds are on

Wonder what the odds are on Silvio getting the boot before the ETSF goes through ? Might be worth a small punt ?

Interesting analysis of Italy https://www.bbc.co.uk/news/business-15429057

Unlike their counterparts in Spain or the Irish Republic, ordinary Italians have not run up huge mortgages, and generally have very little debt.

That means that according to the Bank of International Settlements Italy as a country - not just a government - is not actually terribly indebted compared with other big economies such as France, Canada or the UK.

Moreover, the large debts of the Italian government are nothing new. It has got by just fine with a debt ratio over 100% of its GDP ever since 1991.

The main reason is because - unlike Greece - Italy is actually quite financially prudent.

The government spends less on providing public services and benefits to its people than it earns in taxes, and has been doing so every year since 1992, except for the recession year of 2009.

Indeed, the only reason Italy continues to borrow at all is to meet the principal and interest payments on its existing debts.

Grim outlook

So why is Italy in trouble now?

The reason is because its economy is so weak.

Italy is plagued by poor regulation, vested business interests, an ageing population, and weak investment, all of which have conspired to limit the country's ability to increase production.

The country has averaged an abysmal 0.75% annual economic growth rate over the past 15 years.

That is much lower than the rate of interest it pays on its debts.

And this creates a risk that the government's debt load could grow more quickly than the Italian economy's capacity to support it.

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