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

About the Author

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  485 Comments

LaMachinna
Oct 25, 2011 - 12:29am

Tesla...

we need a barf pic.......or maybe an evil pic....or maybe the pope as the biggest craze bag of them all pic. Really?

grrrrrrrrrrrrrr

Turdle GG
Oct 25, 2011 - 12:40am

@donno

You're asking the wrong person. Why don't you ask Bron Suchecki.

SilverWealth
Oct 25, 2011 - 12:42am

thanks

Its interesting to look with a forensic perspective on banks longing gold ahead of another downgrade that is now anticipated. Who knows? Its a possible pattern but its a guess.

Certainly if Gold really does rally, Silver will follow and then if the gold rally is substantial Silver will overtake towards the end and exceed gold with its momentum. The two trade together. Saying that Gold will rally and Silver will remain sluggish because the chart looks sluggish now misses the mark I think. Silver always surprises wildly both to the downside and the upside.

I guess techies feel now that since GDX held some sort of a bottom that that means its going to the top of its channel again now. What is behind this crazy sort of short term momentum reasoning is beyond me. Couldn't it just fail half-way? Is there something written in stone here that decrees that it goes to the top of the range? I don't get it. Makes no sense to me. The miners at the first sign of equity weakness will sell down hard again.

still trying to understand the mind of the momentum trader. Oh well....

The Vet SilverWealth
Oct 25, 2011 - 1:00am

SilverWealth - It's not the momentum trader any more

it's the algorithms in the HFT traders computers which have these turn points and trading range programmed in, regardless of any fundamentals. When HFT traders are creating 60% + of the volume and all of it in 100 share trades, then momentum is created artificially, and with their ability to cancel and switch in microseconds at no cost, the average guy can't compete. Any attempt to trade normally in those issues results in getting 100 share fills and huge commissions from most brokerages.

The HFT scam, (and it is a scam IMO) could be stopped immediately by charging a fee for every canceled order. A penny or so per order canceled regardless of size, would do it nicely. It wouldn't worry the retail investor or the big funds, but the HTF operator scalping fractions by his high speed front running and ducking by equally high speed cancels would find his activities a lot harder to make money on.

exiledbear
Oct 25, 2011 - 1:32am

Here's some inflection point music

Beastie Boys - Alive
European American ¤
Oct 25, 2011 - 2:32am

"World power swings back to America" posted by DPH

Total propaganda BS. Only reason the so called "power" is swinging back to America is that everyone else just happens to be nearing the bottom of the canyon in free fall, faster. Whereas the U.S. of A. is off the cliff, picking up speed on its way down, and like the rest, without a chute, will meet the same fate; an up-close, personal view of the high intensity, catastrophic mess. "Postponement of the inevitable" is the illusory, perceived Power, mindless America will temporarily enjoy.

That's about the time when having these stacks will finally pay off and be well worth the wait. Rest assured though, it's not going to be a picnic. Austerity Measures are still on the menu.

Keep your silver close, but your Gold even closer. We live in a War Zone.

T
Oct 25, 2011 - 2:38am

Dan Norcini's blog

He says it all today in his blog. very simple and to the point.

www.traderdannorcini.blogspot.com

austrian12874
Oct 25, 2011 - 3:39am

Actually...

Correct me if I"m wrong...but

I think what Ivar's charts say is that up to 1800 gold will be stable. So Ivar's never said that gold won't reach 1800, but rather that it will reach 1800 and remain relatively flat at those levels.

Also, his charts say that silver will go up to 40 and trace back down.

So please take the time to actually look and analyze his charts before stating incorrect facts.

His charts also say that EUR/USD will reach 1.40 and trace back down again. He also called for 100 oil.

So far so good ivars.

Hammer
Oct 25, 2011 - 3:51am

Wow. Just wow. Making money

Crippling debt burden

BBC Radio 4's File on 4 has discovered that some hedge funds are planning to cash in on the crisis by buying Greek debt in the form of Greek government bonds.

Their strategy depends on the troika persuading banks to agree to what is called a "haircut" in the value of their holdings of such bonds.

Only by reducing Greece's now crippling debt burden, the troika insists, can a continued crisis be avoided.

It is because this write-down would be voluntary on the part of bondholders that hedge funds have found an opportunity. Having bought the bonds, they can then refuse to agree to the voluntary haircut and demand payment in full when the bonds mature.

Christopher de Vrieze, who writes on sovereign debt for the specialist news service Debtwire, says some hedge funds are targeting short-term Greek bonds due to mature in March next year.

If the troika does persuade banks to agree to a voluntary write-down, Christopher de Vrieze says "Greece will be financed for another couple of years, and will be most likely to be able to pay its shorter-dated bonds.

Rui
Oct 25, 2011 - 4:15am

Cooked one Dow/Gold chart using DIA and GLD

I was using the formula of (DIA / GLD) X 10 on closing price. Notice a few things on the chart:

  • The ratio follows a nice pattern of down then retest previous support now resistance then down again then retest again ...
  • We went down to 6 level in August.
  • Looks like we are retesting the zone of 7.3 to 7.8, the previous support but now resistance.

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