Gold and Silver Looking Good; Caution Warranted
So, there you have it. The technocrats of Europe have spun up a deal to prolong the illusion that all might one day be well. This was expected simply because a default cannot be allowed for the reasons we laid out yesterday. The fiat currency reaction has been muted but the metals are rallying, regardless, due to the money creation that will be the end result of this latest "bailout".
I'll dispense with the news and analysis this morning and simply head to the charts. First, here's gold. Until and unless gold is allowed to trade through the top end of its range, there is no real change. On balance, the slide since the BLSBS report seems to have run its course and gold has made a nice, little bowl-shaped bottom on this chart. Now, I expect a punch toward the early February highs of 1760 or so. There, you'll find The Forces of Darkness waiting. Look for them to drop the hammer and attempt to drive gold back down to 1730-35. IF this comes to pass, I'll be ready to buy.
So, now, here's The Pig. This chart is all-important as it is still acting as an inverse to silver and silver is my primary concern, right now. Note that Pigatha, after attempting to break out last week, has fallen right back into the middle of its range that began about a month ago with the FOMC minutes.
Again, compare the chart above with the chart below. Any dollar strength translates directly into silver weakness and vice versa. Predictable, yes, but very frustrating. I would much prefer that silver trade on its own fundamentals, instead.
OK, so now here's the problem. I must admit to having read some other websites and emails where the authors claim that silver lease rates have nothing to do with price and should be ignored. Who knows, maybe they're right. Most of those folks are way smarter than I am and, from a long-term perspective, it all comes out in the wash, anyway. However, if you're trading or looking to swap some more fiat for physical soon, you absolutely must be cognizant of the chart below. As you can plainly see, the last two dips below -0.40% in the one-month lease rate have been followed within a week by steep drops in paper price. Additionally, last Friday's CoT showed another increase in the net short position of the EE.
If a significant raid materializes later this week or early next, I would look for silver to cascade down to at least 32, though 31 would be a possibility and 30 would not be out of the question. IF we can get that to happen, it would be an extraordinarily wonderful buying opportunity. The daily chart would have a long-term reverse H&S painted upon it and we could all aggressively buy with a very high level of confidence. Therefore, be patient and cautious. Let's see how this all plays out.
Speaking of massive, reverse H&S breakouts, take a look at this long-term chart of crude. The rally from Monday stopped at $105 and that is significant because a close above there clearly foreshadows a run to $115 and, beyond there, the old highs of 2008. Gasoline prices in the U.S. are already reaching $4/gallon in some places and even $5/gallon in California. And it's only February!! Combine $115+ crude with summer driving demand and you'll see $5/gallon gasoline nearly everywhere. "Big deal", you say, "I don't drive that much anyway". Ah, but it is a big deal! Nearly everything in this country is grown, manufactured, packaged and transported through the use of petroleum products. Already our cost-push inflation is averaging 10% on staple items. In a few months, it might be annualizing at 20%+. Combine that with $5 gas and you've set the stage for what could be major and serious civil unrest later this summer.
As I close, I see that gold is 1756 and silver is 34.15. I strongly urge you not to chase here. Buying high and selling low is the primary way that metals traders get cleaned out. I, for one, am watching from the sidelines and waiting to see where we go from here.