Thu, Dec 15, 2011 - 5:05pm

Thanks for your patience in my absence today. No, I did not have jack-booted thugs visit my home overnight to whisk me away to a re-education camp. Mama Ferg simply required my assistance this morning. That said, I believe we had a very constructive day today in the PMs and we are very close to declaring a bottom.

Let's take this bottom search in three steps. First, let's look at the hourly charts. It is on these short-term charts where we should find our initial evidence.

Isn't it interesting that these charts can look so similar on the way down but then have different shaped bottoms? Gold, if it indeed bottoms here, will have a flat, double-bottom look to it. Silver, on the other hand, shows a distinct, reverse head-and-shoulders bottom. Anyway, none of that will matter if the bottom drops out tomorrow so let's not get ahead of ourselves. For now, though, these charts give us reason for optimism, especially when combined with the weekly charts below.

Let's take these two separately. First, the gold chart. Note that, so far, the decline stopped right where we expected it to, on the lower channel line from 2008. Can't ask for more than that! It is important to note, however, that in the 4 or 5 other touches of this line over the past 3 years, gold has bounced along it for a period of 2-4 weeks before lifting away. So, just because a bottom is in does not mean we should expect gold to trade immediately back to 1800. Give it the rest of this month to get its act together and then maybe we'll have an explosive January.

In silver, look at the new pennant I've drawn. Careful readers will note that I first drew that bottom line yesterday on a chart where we were looking for potential areas of support. In revisiting that idea today, I've decided that this works pretty well and I'm going with it. Why the heck not? Magnify the image and look at how closely the points line up. Additionally, this pennant makes sense from a fundamental standpoint, too. The bottom line of support is drawn off the lows prior to the emergence of our infamous Buyer(s) of Size back in August of 2010 when silver was just $18. The top line of support is drawn off of the highs in April when the pressure on the Forces of Darkness had become so extreme that they had to raise margins 5 times in nine days. Anyway, I may look like an idiot if this formation breaks down and silver heads to $20 but, for now, I'm sticking with it as I believe I'm onto something.

The final piece of the puzzle/riddle/enigma in the search for a bottom is a turn in the one-month lease rates for gold. As you know, it was by noticing the dramatic inversion of lease rates last week that we were able to accurately "predict" this current beatdown. Therefore, any search for a bottom must also include a check of the current, one-month lease rates. Well, whadayaknow? Take a look at this chart. In September, gold stabilized and rallied after one-month lease rates "fell" from -0.5% to -0.25%. Current lease rates "bottomed" earlier this week and have since "rallied" in a manner almost identical to September. Hmmmm.

So, anyway, here's the deal. My confidence level is high that we are very near a bottom...not just of this current beatdown but of the entire, manufactured "correction" from September. Let's see how things trade overnight and tomorrow before we get excited but you can clearly see where things are lining up both technically and fundamentally for a bottom.

Lastly, I must comment again on the very interesting open interest numbers.

  • The Feb12 contract saw its OI rise by 2000 contracts yesterday, a day where the Feb11 contract closed almost $80 lower than its close on Tuesday. Sure, maybe some half-crazy new spec longs initiated a few contracts yesterday. But 2000??? Not a chance. The bulk of the 2000 are clearly blatant, manipulative new shorts added by The Cartel in an attempt to drive price down. Well, what can you say? It worked. Good for them. For us, however, this is very good news. Clearly, the spec longs remaining are resolute. If they didn't panic and sell yesterday, they likely won't sell tomorrow, either. On the other side, those fresh shorts that the monkeys put on yesterday are eventually going to need to be covered. Therefore, this rise in Feb12 OI is a double positive.
  • Potentially more interesting and compelling is the continuing rise in the OI of the Dec11 contract. Even though every day brings settlement of standing contracts, the OI keeps rising. After accounting for settlements, the open interest after yesterday was 2327, UP 517 contracts from Tuesday! Again I ask: Is the demand for physical so high that some are "jumping the queue" in order to get metal this month, not waiting for February?
  • And take a look at this...January is not a "delivery month" so the contract is lightly traded as almost all of the action is in the Feb12 contract, the next delivery month. However, check out the Jan12 OI: After Monday it was at 663 contracts. After Tuesday, it rose to 894. Now, after yesterday, it stands at 1061. Again I ask: Is the demand for physical so high that some are bypassing the normal Comex "order" and moving for delivery in January? If you're not confident that the Comex will be able to satisfy all those that might stand in February but you're not yet ready to pony up 100% margin to buy December, do you buy a Jan11 as "insurance"?

In any event, these OI statistics are really, really interesting and must be watched every day as we close out this month and move into January. They may not be able to tell us definitively, before-the-fact that something major is happening on the physical demand side of things but they certainly give us warning to pay attention. If a major physical squeeze does develop in the next few weeks, we will be able to look back on these OI numbers with hindsight and say that the signs were all there, staring us in the face.

That's all for now. The LTs have a "Christmas Pageant" tonight so I will be out of touch for a while, monitoring the action on my iphone. Let's see if a rally can develop that carries over into tomorrow. Keep your fingers crossed.


About the Author

turd [at] tfmetalsreport [dot] com ()


Dec 15, 2011 - 5:06pm

someone posted this earlier

I think this is an interesting analogy:

One Hundred Million Dollar Penny
Dec 15, 2011 - 5:09pm



Dec 15, 2011 - 5:13pm

Get Ready to Board

The train will leave the station shortly.

Dec 15, 2011 - 5:14pm
Dec 15, 2011 - 5:17pm

What is all of This Concern about Deflation?

The people are only concerned about inflation because the largest burden of inflation is on those who receive the newly created money last. The true deflation concern is assets deflating enough in value to cause the banks to go bankrupt.

What is all of this Concern about Deflation?

Dec 15, 2011 - 5:18pm
Dec 15, 2011 - 5:23pm


While the metals MIGHT be bottoming, I think that the best we can expect is flat price action. We are deep into the holidays season, and many traders are not active. I expect the real fireworks around the second week of next month. of course Europe going to hell, or military action in the Persian Gulf could change all of that very suddenly, so be watchful.

Dec 15, 2011 - 5:33pm

Not convinced yet

Can't get too excited about a major bounce until I see the metals move in the opposite direction of equities in any meaningful way. In the short-term, if some headline out of Europe sends the S&P down 15 points, I suspect the metals will go right along for the ride . . .

Dec 15, 2011 - 5:40pm

Great video! 

Great video!

Dec 15, 2011 - 5:41pm


I pity the poor SOB that had to clean up all of those pennies!

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Key Economic Events Week of 10/21

10/22 10:00 ET Existing home sales
10/24 8:30 ET Durable Goods
10/24 9:45 ET Markit flash PMIs
10/24 10:00 ET New home sales
10/25 10:00 ET Consumer Sentiment

Key Economic Events Week of 10/14

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10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
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10/1 10:00 ET ISM Manu PMI
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10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
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10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
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Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
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9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

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