Gold and Silver Looking Good; Caution Warranted

Tue, Feb 21, 2012 - 10:53am

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.


About the Author

turd [at] tfmetalsreport [dot] com ()


Feb 21, 2012 - 10:57am



cliff 567
Feb 21, 2012 - 10:59am

1st first




Feb 21, 2012 - 11:00am

Not me!

Surely. DOH! not first.

Eric Original
Feb 21, 2012 - 11:01am

To the Victor go the spoils.

To the Victor go the spoils. Hat Tip to Zenith, cold gruel for the rest....

Be Prepared
Feb 21, 2012 - 11:06am

The Gods of Thunder and Lightning

are rattling the cages of the market!

Turd, I agree with you that chasing this market mid-move could get you upside down quickly. It's interesting that the silver lease rate may be indicating a pull back, but it's entirely believable. I wonder how much silver is really left in the comex... the world may never know (at least, for now). Thanks for putting together a great mid-day post!

Feb 21, 2012 - 11:08am


F*cking children!

Desert Fox
Feb 21, 2012 - 11:11am

Race for first at TF Metals

As you can imagine, I'm not even in the photo. lol

OK, Let's get serious about a hard push past 1770 with some room to spare.

Let's get this party started. This is the week!

Feb 21, 2012 - 11:12am

maybe you are after all, fox.

the guy furthest to the left in the white shirt...

no, not winning

about to be lapped ;)

little confidence this move will have legs tf?

Feb 21, 2012 - 11:16am

PSLV Premium Up

Not sure if/how that relates to the action in PM this morning but PSLV premium is up 1.7% as of 11AM EST

Feb 21, 2012 - 11:16am

They can't even push it down for the LBMA close

Freaking AWESOME action! Let's get that final push up to 1760/34.5 before the crimex close.

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
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

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
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
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

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
9/5 10:00 ET ISM Svc PMI
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

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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