And not in a politically progressive sense.
Forward is the direction of the price of precious metal. We have been in a 3-week mini-correction, almost identical in duration and magnitude to the counter move of January 2011. Back on Saturday, I gave you projected lows of $1700 + 10 in gold and $31.50 in silver. So far this week, we have seen the Dec12 gold trade down to a low of $1698.70 and the Dec12 silver reached $31.53. That ought to do it.
I firmly believe that we have now seen the bottom of this pullback. Though a V-shape with no retest is possible, we must still expect some angst and volatility over the next 3-5 days. The fresh shorts will not give up easily so expect them to attempt to game every opportunity to restart the momentum to the downside. Again, as The Old Man says: Let om. They won't be successful.
There are clear lines on the chart now where, above which, shorts will begin to capitulate and cover. Eventually, it becomes apparent to nearly all market participants that a bottom has been reached and the rebound begins to create its own momentum. Soon, bargain hunters begin to charge in as they realize that fundamentals are once again in control. As we finish October and head into November, I then expect a consistent and, at times, sharp rebound.
Here are your charts. Let's start with silver where the bottom is more clear and the breakout through the downtrend line appears to be more imminent.
And note that on the daily chart with the Relative Strength Index, silver has reached a level of "oversoldness" not seen since the price bottom of late last summer.
The gold chart isn't quite as compelling...yet...as gold likely has a little more work to do in building a base. Regardless, I'm extremely confident that we saw the lows yesterday.
And, like silver, gold is quite oversold, from a momentum standpoint.
So, what does this mean? History and current fundamentals tell us that this correction has now run its course. From here, though, do not expect a rapid recovery, at least not initially. Let this play out over the next week or so. Traders should be utilizing this time period to begin building positions by buying dips and adding incrementally.
History also suggests, though, that this next move in the metals will be significant. Let me just remind you that, after a nearly-identical rally and pullback in the post-QE2, 11/10 - 1/11 time period, silver soared nearly 90% in 90 days and gold rallied from $1308 to $1920 in 7 months. And I would further add that the current fundamental case for acquiring precious metal is even stronger than it was then. Be ready.
Lastly, you may have noticed that I've not yet commented on this "German gold repatriation" story. ( http://www.dw.de/germany-to-check-gold-reserves-stored-abroad/a-16329995 & http://www.washingtonpost.com/business/german-auditor-office-urges-central-bank-to-control-gold-reserves-held-in-us-france-britain/2012/10/22/a986448c-1c63-11e2-8817-41b9a7aaabc7_story.html). That's by design because, quite frankly, I can't decide how significant the story is. Is it just more anecdotal evidence of conspiracy and proof ongoing swaps, leases and manipulation of the metals OR is it the final straw, the first major crack in the facade of illusion regarding unallocated and allocated gold? Below is the story from yesterday by Ambrose Evans-Pritchard. The brief article is worth reading but this seems to me to be the key paragraph:
"Peter Hambro, chair of the UK-listed gold miner Petropavlovsk, said the Bundesbank may have withdrawn its bullion in self-protection since it did not, apparently, have its own specifically allocated bars in London. "They may have decided that the Bank of England had lent out too much gold, and decided it was safer to bring theirs home. This is about the identification. Can you identify your own allocated gold, or are you just a general creditor with a metal account?"
As you might expect, Bill and Chris are all over this story and their site is rich with links for you to ponder. Here are just a few that you should make time to review:
But I urge you to take the time to read all of the way through this: http://www.gata.org/node/11862. Here, let me get you started...
By Lars Schall
Wednesday, October 24, 2012
It's strange what you encounter when you try to take a serious look at the gold policy of central banks and their agents, the bullion banks.
Some observers, including the Gold Anti-Trust Action Committee (GATA), estimate that Western central banks have on hand nowhere near as much gold as they claim. These observers suspect that much Western central bank gold has been sold or leased largely surreptitiously to restrain the gold price over the last two decades.
Here is the explanation provided to me in an interview by the Canadian financial analyst and fund manager Marshall Auerback when I asked: Do you think that the Western central banks and the International Monetary Fund really have in their vaults the gold they say they have?
Marshall Auerback: "In a strict accounting sense they might, but it might be irrelevant. I suspect that the central banks have not been selling much gold over the past few years since the inception of the Washington Agreement on Gold, but I think they have still been leasing considerable amounts into the gold market. From a flow standpoint, it's irrelevant whether the gold is sold or lent, as it still appears as supply in the market. So the key question becomes: Can the leased gold be recovered by the central banks? The work of GATA and others such as Bob Landis and Reg Howe suggests that the gold cannot be recovered. In effect you have a 'prison of the shorts' situation, whereby the gold that has been lent out and melted down to become, say, part of some Indian bride's dowry will not be coming back into the market.
Ultimately, I think, the central banks will ratify this in an accounting sense by reclassifying the leased gold as sold, so from a stock standpoint, that will validate GATA's argument that there is far less gold being held by the central banks than is commonly believed...
And here is the author, Lars Schall, being interviewed by Max Keiser last week:
If you have the time, here are some more links for you to look over:
Again, I'm not certain yet as to how big of a deal this is. Form your own opinion and act accordingly.
As I close, I see that prices are holding firm at $1715 and $32.15. This is good. Buy a little more today and get ready for an explosive end of the year and an historic 2013.