Revise and Extend
Just wanted to take a moment and add a few thoughts to the previous post.
I wrote that post late Wednesday with the intention of keeping it up all day yesterday. I had a hunch that The Cartel would try to gun the PMs yesterday and they did. Is it a concern that they were able to smash gold through 1550? Of course. However, it's not the end of the world by any means.
Remember, I'm just working with a ruler and a sharpie here. I've been saying 1550 for a couple of months now based upon where I eyeballed the trendline from the 2008 lows. The key here is that 1550 was/is an approximation. Thankfully, several posters to the comments of the previous thread were able to define the trendline more exactly.
First up, "goldfinch" pointed out that Louise Yamada had been on KWN back on 12/6, basically giving the same numbers that we have been discussing here. As you know, Ms. Yamada is the only technical analyst for whom I have great respect. Her history and track record speak for itself. To discover yesterday that she is looking at the same charts as little ole me made me smile a bit. Maybe I have learned something over the years.
Just a few minutes later, "kazooclown" posted a more accurate representation of the weekly chart. I've reprinted it below so that you can see where he has drawn the trendline. As you can see, it's considerably below 1550.
Anyway, there are three important points I want you to take away from this thread:
- 1550 was not a hard and fast number. It was a projection and a guess. Therefore, failure at that exact level is not cause for extreme alarm and concern. That said, failure at 1500-1515 would, quite obviously, be a cause for extreme alarm and concern as both Yamada and "kazooclown" have shown us.
- Yesterday was not likely the bottom. It could have been but it probably wasn't. If 1500-1515 is, in fact, a better representation of the trendline, then we should all be prepared for gold to trade down close to there sometime early in 2012. This final move down in gold will likely also cause silver to move down close to its long-term trendline near 25.
- And this may be the most important point so I'll reprint it from the previous post: "So, here we are, caught in this strange new paradigm of extreme physical demand in the face of plummeting paper prices. In this environment, why on earth would we expect the gold price to suddenly stop and reverse exactly at some trendline on the chart? That makes no sense. The trendline is a reflection of market price history that simply has no bearing on today. Simply put, the trendline held in the past because investors still had some measure of faith and confidence in the current system. But this is the dawn of a new day. The Comex is dying. Soon, the spread between the price of paper and physical metal will diverge to such a point as to make the Comex an obsolete joke. But that day isn't here yet. It may still be weeks or months away. Until then, the imbalance between buyers and sellers will only increase so I expect the price of paper metal to decline even farther. All of this likely makes my little trendline as obsolete as a sliderule."
So far this week, open interest has held in there. In fact, its even expanded a little in silver. As long as total OI stabilizes above 400,000 in gold and above 100,000 in silver, we can consider the Comex to still be "alive". So, under those conditions, I have a high degree of confidence that the long-term trendlines will hold and will function as support as gold and silver finally find their bottoms from the manufactured declines of the final 4 months of 2011. The bottoms may have occurred yesterday but I think it's likely that we will see a final, capitulation event early in 2012 where gold drops into the 1500-1515 area and silver touches 25.
Lastly, as a pick-me-up, here's a fun little nugget I found while searching KWN for the Louise Yamada clip. It's an interview of the genuinely smart Egon von Greyerz of Matterhorn Asset Management in Switzerland. I think it will put a smile on your face and let me just say, I don't disagree with him...
OK, that's all for now. I plan to type up a kind of month-end and year-end summary later today or tomorrow so keep checking back. Have a great day. Smile and be happy. TF