There He Goes Again

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:

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.

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.


9:50 am EDT UPDATE:

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

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

About the Author

turd [at] tfmetalsreport [dot] com ()


Oct 25, 2011 - 11:42am

Yo Dr G, the Au Viagara hasn't gotten it done in weeks....

Let's take what we can get while we got what we got here bro

Eric, I'm ashamed to post such an idiotic thing on anything near the same page as your tome this morning

Bro, that is some fine work and analysis. Always so helpful when one makes connections clear, provides ample illustrations of points made, and organizes the heck out of the whole 9. That you can provide your own bit of brill analysis to finish is even more impressive. Thanks for taking the time to teach us more about financial repression, much appreciated.

First and foremost, learning and teaching on the basis of what of true Value each can bring to Town is what it's really all about.

Eric Original
Oct 25, 2011 - 11:42am

Hey how about that gold

Hey how about that gold price? Something happened while I was busy typing!

Oct 25, 2011 - 11:47am

The only thing

'they' can't take from us - is our will. As long as you never give it to them...


I noticed the price in oil too - shooting up heavy. Maybe 'they' are anticipating something - a need for fuel soon to get the war machine all oiled up.


Drama every day... is turning into drama every hour...



Oct 25, 2011 - 11:50am
Oct 25, 2011 - 11:51am
Ferd Torgerson
Oct 25, 2011 - 11:51am

And, What about that SVM?

Yep, Eric, I'm liking what I'm seeing in Gold and Silver.

Not sure why SVM is not participating with other miners in today's upswing. In going back and reading TomL's and sheeple's comments from yesterday, I realize there could be some pullback to fill an earlier gap that was left by yesterday's ride up if we had a pullback in silver.

Thus far, silver's hanging in there but SVM is down. Don't see any news anywhere that would explain this other than there may be some profit taking after the quick ramp up.

Oct 25, 2011 - 11:51am

Grim outlook So why is Italy

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.

Yep, That whole Exponential Growth thing tends to hit a wall after a while. Who would have guessed?

Oct 25, 2011 - 11:52am

My package just arrived :)

My package just arrived :) Nice new Tube of Timber Wolfs

Something about holding 25 oz in ones hand that bring out a smile in you. :)

Oct 25, 2011 - 11:52am

Be careful guys

With these price moves on the London close, it might be a move of the titans battling.

Some trader desk could be getting set up for a fall. On one hand it could be a move to squeeze shorts.

The true move could be in another commodity.

Be careful of leverage, and paper. Isn't CME settling date 6 days from now?

Oct 25, 2011 - 11:54am

Weekly slow stochastics and

Weekly slow stochastics and Williams R are bullish enough. Soon MACD will point up I think.

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