The Impending Bottom in Gold and Silver

Tue, Mar 6, 2012 - 10:11pm

What a difference a week makes! Just last Tuesday, this site was aflutter with expectation and hope. Silver appeared to have won its "Battle Royale" and was threatening to take gold along with it through stout Cartel resistance. Ehhh....not so much. So here we are, one short week later, and despair reigns supreme, replete with frustration and fears that our precious precious metals are about to swoon to levels not seen since 2010. I'm here to tell you that that is complete nonsense.

First of all, a little something I've got to get off my chest. Since this little endeavor began 17 months ago, I have never been anything but upfront and honest with you. In one of my very first posts, I explained the reason why my version of technical analysis works. Namely, because the PM "markets" are so grossly manipulated, basic TA can direct you to buy signals and sell signals, resistance zones and support levels. So simple, even a Turd can do it.

Lately, however, its become fashionable to ridicule technical analysis. All the cool kids seem to be saying: "Charts are worthless. TA never works in a manipulated market". Hmmm. Isn't it interesting that that seems to be 100% opposite of what I've always claimed? Interesting, too, how these comments seem to multiply during periods of price weakness. But I digress. All I can tell you is that I fully believe in the value of my "abilities". Am I going to be 100% correct? Of course not! I don't work for Goldman Sachs. However, as long as The Cartels continue to dominate the paper markets for precious metal, price forecasting using basic technical analysis will continue to work.

Ultimately the question is, do you still want to play? Your #1 best option is still to stack and hold physical precious metal. Always has been, always will be. In the meantime, if you'd like to fiddle around trading, attempting to cobble together extra fiat with which you can acquire even more physical, I will continue to provide analysis, hoping to be right more often than not.

Back in December, there was reason to think that the paper game was ending. The ugly demise of MFingGlobal had frightened many traders and, more importantly, many Departments of Compliance. As you'll recall, it was very difficult to get excited about buying the late December dip because no one could be certain at the time that the "market" for precious metal would ever be the same. What if traders and investors exited the Comex altogether? Would we see total open interest in gold decline through 400,000 contracts and head toward 300,000? Maybe even 200,000? With these doubts, the entire idea of TA was dubious at best. How can you technically analyze a "market" if the "market" in question is ceasing to exist?

I believe we got our answer in January and February. Instead of collapsing, The Comex rebounded. Trading volume and open interest slowly returned. Not to the levels of mid-2011, mind you, but enough that I no longer have any doubt as to the continued viability of the Comex paper metal platform. (Let me put that in English. Instead of abandoning the Comex, large spec money returned en masse once the metals began to generate some upside momentum. Those specs are currently being fleeced again by The Cartels but, as sure as spring follows winter, they will return again once price bottoms.)

So, now that I've made it clear to you that I continue to fully believe in my technical analysis ability and now that we know that, fundamentally, nothing has really changed post-MFG, it's time to start looking for a tradable bottom to this latest Cartel-induced fiasco.

Before we get to the charts, I urge you to click the link below. The post to which you'll be directed is a little something I cooked up back in early January, the last time we went bottom-searching. Please re-read it now as a sort of primer for what I'll present to you next.

Look, I'll cut to the chase: Gold and silver will soon reach a bottom for this manufactured "correction". Of this, you can be certain. Silver is not going to $20 and gold is not going to $1250. They're just not. The awareness level is now too great for that to happen. Global investors and central banks see what is coming. They know that The Great Keynesian Experiment is ending and, with it, our reliance upon unlimited fiat money. At a certain price, physical demand will always appear and paper price will bottom and trend higher. Period. All of the never-ending, deflationist nonsense has nothing to do with the long-term price of silver and gold. We know that The Fed and the ECB will stop at nothing when it comes to printing their way out of this morass. This continuing fiat devaluation will only serve to make physical metal more valuable, not less. Dips will be bought and price will continue to trend higher. And you can forget about The Cartels rigging price down to zero, too. As long as physical demand remains strong, paper price must be allowed to rise in tandem with physical price, otherwise The Comex and LBMA will sink into irrelevance. Since this cannot be allowed to happen either, we're left with "markets" that will bottom and will resume trading higher. Eventually.

So, the question is: How much farther can we expect price to fall in this current "correction". The answer is: A little farther. Let's begin our chart parade with daily gold and silver that also have their MACDs on them. Note that both of these charts, while beginning to look oversold, are clearly not there yet. A little more weakness in both metals ought to do the trick.

Next, let's examine the daily gold and silver charts with RSI measurements on them. Again and, as you can see, an RSI of 70 is generally considered an indicator of a short-term top while an RSI of 30 seems to indicate a bottom. Note that both of these charts seem to imply that further weakness may be needed before we get can confidently predict a bottom.

So now let's look at just a plain, old price chart. Do we see evidence that further declines are imminent? You bet! Take a look for yourself. Once gold broke 1690, it indicated a minimum further drop to around 1650. I'd say its at least heading there and probably heading as low as 1625 or even 1600. You should be asking yourself: Would a further drop of that magnitude move both the MACD and RSI into oversold (bottom) territory? The answer is: YES!

Silver, same deal. By taking out 32.80 today, the chart now indicates a further drop to at least 32, maybe even 31. Heck, if The EE really hits the gas and gets a little headline "help" out of Europe, $30 silver isn't out of the question. Again, would a drop toward $31 bring the MACD and RSI into the "buy zone"? Yep.

I could go on but it's late, I'm tired and I have to go pick up LT#1 from ballet class. Let's just leave it at this:

What we are currently experiencing is nothing more than another Cartel-manufactured fleecing of the momentum-chasing, WOPR-oriented spec longs that flooded into gold and silver in the 2nd half of February. The Cartel was forced to act when price reached the critical "Battle Royale" zone on the price charts, documented here days and weeks in advance. Price will soon bottom and begin to recover. Therefore, do not let your heart be troubled. Owning physical precious metal is your only protection against the financial calamity and reset that is coming. Please do let let anyone, on this board or elsewhere, convince you otherwise.


About the Author

turd [at] tfmetalsreport [dot] com ()


Mar 7, 2012 - 10:26am

US Dollar Breaks Out Higher as S&P 500 Snaps 2-Month Up Trend

THE TAKEAWAY: The US Dollar broke resistance capping prices since mid-December as the S&P 500 reversed sharply lower after an extended test of 2011 highs.

S&P 500 – Prices reversed sharply lower having lingered in the 1358.60-1376.10 area for three weeks, validating overt negative RSI divergence we have been monitoring for some time. Sellers now aim to challenge the 23.6% Fibonacci retracement at 1337.30, with a break below that exposing the 38.2% Fib at 1311.30.

Daily Chart - Created Using FXCM Marketscope 2.0

CRUDE OIL – Prices followed a bearish Three Outside Down candlestick pattern with a break below support at 105.82, the confluence of the 23.6% Fibonacci retracement and a rising trend line set from the February 2 swing bottom. Sellers now target the 38.2% Fib at 103.28. The 23.6% level has been recast as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD – Prices took out support at 1687.97, the 38.2% Fibonacci retracement, exposing the 50% Fib at 1656.38 as the next downside objective. The 1687.97 level has been recast as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

US DOLLAR – As we suspected last week, the greenback moved higher after putting in a Bullish Engulfing candlestick pattern. Prices have now cleared falling trend line resistance set from the mid-December swing high as well as the 38.2% Fibonacci expansion at 9928, hinting at continued upward momentum ahead. The bulls now aim for the 50% expansion at 10005. The 9928 level has been recast as near-term support and is reinforced by the channel top, now at 9903.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

Mar 7, 2012 - 10:28am

Germany Wants Audit of Gold Reserves

German lawmakers are to review Bundesbank controls of and management of Germany’s gold reserves. Parliament’s Budget Committee will assess how the central bank manages its inventory of Germany’s gold bullion bars that are believed to be stored in Frankfurt, Paris, London and the Federal Reserve Bank of New York, according to German newspaper Bild. The German Federal Audit Office has criticised the Bundesbank’s lax auditing and inventory controls regarding Germany’s sizeable gold reserves – 3,396.3 tonnes of gold or some 73.7% of Germany’s national foreign exchange reserves. There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany's central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves. The eurozone's central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans. The concern is that were the eurozone to collapse, Bundesbank's losses could be half a trillion euros - more than one-and-a-half times the size of the Germany's annual budget. In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark. The German lawmakers are following in the footsteps of US Presidential candidate Ron Paul who has long called for an audit of the US’ gold reserves. It is believed that some 60% of Germany’s gold is stored outside of Germany and much of it in the Federal Reserve Bank of New York.

Mar 7, 2012 - 10:33am

Commodities to Recover as Profit-Taking Fuels Bounce in Risky

Commodities to Recover as Profit-Taking Fuels Bounce in Risky Assets

By Ilya Spivak, Currency Strategist Daily

Spot Silver (NY Close): $32.95 // -1.03 // -3.02%

Prices continue to decline after completing a Bearish Engulfing candlestick pattern below resistance at 36.99, the August 29 2011 swing low. Sellers have narrowly taken out support at 32.97, the 38.2% Fibonacci retracement, although secondary support at the February 16 low (32.63) needs to be overcome before the 50% level at 31.67 is exposed. The 23.6% retracement at 34.59 is acting as near-term resistance.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.738 // -0.122 // -3.16%

Copper is moving closer toward validating a Head and Shoulders top chart pattern below the 4.0 figure, with prices taking out rising trend line support set from the December 15 swing low. The bears now aim to challenge the would-be H&S neckline at 3.713, with a close below that completing the formation and exposing a measured target at 3.438. The trend line, now at 3.837, has been recast as near-term resistance.

lairdwd worldend666
Mar 7, 2012 - 10:39am

Greece Gross CDS Exposure

69.5 B - what that doesn't tell you is how much of that cancels each other out. I don't know how long those counterparty chains are, but I don't think a default of this size will take down the system.

In fact, I see this as another opportunity to juice the CDS markets to take on more counterparty risk as they declare the Greece default a successful demonstration of CDS, even though it's a drop in the bucket for the shitstorm that's on the horizon a year or two down the road.

Mar 7, 2012 - 10:43am

Anyone else reminded of the

Anyone else reminded of the Elsworth Toohey character in Rand's Fountainhead whenever Buffet graces us with more pearls? Sorry for being way off topic, just noticed a post elsewhere referencing his comments of late.

Back on topic, not sure about all the way down to 1600 but the bottom often appears as that last annoying stab down (I've begun characterising it like the horror movie baddie looking dead then lurches one more time before really getting it......just me....?!?).

My guess is 1656 on Friday. To the EE lackies that I suspect monitors these sites - please kindly pass on to Ms. Masters (guessing at the Ms. but she strikes me as the not married type) and have this arranged please so I can look good, thank you.

Mar 7, 2012 - 11:02am

Watch the late money moves today

I would think that the ruprects of the world will catch a lil info later today and make a play. Just like horse racing watch the early and the late money. They are the ones that know.

33 and a turd
Mar 7, 2012 - 11:04am

End of the Keynesian experiment in Europe??

An Irish Journalist is questioning the logic of making Keynsian policies illegal (in theory this is what the EU fiscal compact is trying to do)

It is, in fact, a way of thinking that was, for three decades after the second World War, the dominant economic “common sense” of much of the developed world: the philosophy of John Maynard Keynes.

This is the intellectual framework of most of the European centre-left and of New Deal Democrats in the United States. And it is to be banned by an international treaty, like human trafficking or chemical warfare.

Even if you think the Keynesian approach wrong, is it really a good idea to elevate one fashionable orthodoxy to the status of unbreakable law? This is the stupidity of an ideology unwilling to countenance any possibility that it might be wrong. It is crass ideological opportunism, using the crisis to transform one partisan view of economics into an unquestionable fact.

But the fiscal treaty does not deal in “facts”. It is right-wing opinion given the force of law. The “structural deficit” is a highly contested interpretation of complex data – trying to make it a legal concept is nuts.

Interesting times

Mar 7, 2012 - 11:09am

Technical Analysis

It's easy to get frustrated with our results, and rather than blame ourselves, just throw up our hands and say, "technical analysis doesn't work" but I think these critics need to parse the issue and recognize where it undeniably adds to a trader's abilities.

1. In general, there's three important components to successful trading, forecasting, timing, and money management. Forecasting is the least important of this trio, that's why you can trade using Astrology and still make money. Critics of TA are focusing on the forecasting role, and completely ignore that almost all timing is technical analysis. If someone wants to time their trades based on news headlines, good luck.

2. The industry spent decades convincing the public that technical analysis was worthless while they were using charts and TA. Nuff said.

3. Technical analysis measures what the market has actually done and forecasts what it will do based on this reality. Fundamental analysis guesses about the reasons the market did what it did and forecasts based on another guess about what it will do next.

4. You never really know the truth. The validity of your fundamental opinion is NOT vindicated by the end result, because there's too many other factors involved. Do you really think you profited just because your argument was "right?" There are hundreds of equally valid but opposite opinions about what will happen at a given price, otherwise you wouldn't have a balance of longs and shorts and price would have to move higher/lower to find enough traders to take the other side of the trade. In other words, the majority of traders on each side have a good reason to take the trade, so you can never trust a good reason as your sole motivation to take a trade.

5. Technical analysis tells you when you are wrong, a much more important trading skill than a marginal edge in prognostication.

6. Equally important, technical analysis provides you with stops and price targets that are not arbitrary.

7. Technical analysis makes it harder to cheat you. It's a lot more expensive for a market manipulator to move price and paint a chart to trap you than it is to plant a phony rumor in the media.

Don't get me wrong, fundamental analysis isn't useless. Fundamental analysis is, and always has been, the primary means to screw anyone who actively trades. It's used to herd retail onto one side of the trade, and when they are clustered, the Boyz run all their stops. So no matter how good you are at technical analysis, you will fail if your indicators through sheer bad luck put you into a trade with the sheep. No holy grail system can survive if the sheep herd around you. Fundamental analysis is therefore a negative indicator.

Mar 7, 2012 - 11:15am
Mar 7, 2012 - 11:18am

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