Guest Post from EdgeTraderPlus
This was emailed to me last weekend. It's well-written with lots of pretty charts.
The web address for the author is: http://edgetraderplus.com/
Gold And Silver – Current Decline Not Over. Watch Market Activity For Turnaround.
Posted on February 16, 2013
We often make a distinction between buyers of physical precious metals, [PMs] and
buyers of futures, exhorting the former to buy with impunity, and some may see that
as cavalier, given how the price for both gold and silver have been in recent decline.
The point for buyers of PMs is for both protection and creation of wealth. Protection
against insidious central bankers destroying currency-purchasing power, over time,
and wealth creation as evidenced by those buying PMs over the past decade and seeing
the intrinsic value grow dramatically.
Buyers of the physical are less price sensitive and view current declines as opportunity
to add more. As an example, we still hold physical silver purchased when price was in
the mid-40s. Has the relative value declined? Absolutely. Concerned? Absolutely not.
It remains a matter of time when the price of PMs will go dramatically higher, and the
concern will not be how much one paid, $1800 or $1600 the ounce for gold, or $45 or
$30 the ounce for silver. The concern will be over having any at all.
If gold is to go to $3,000, $4,000 $5,000, or wherever, and silver go to $100, $150, or
$250, there will be many who will be glad to have paid $2,500 the ounce for gold, and
$75 the ounce for silver. How does that compare to $1,800 and /or $45 purchases for
physical PMs, at this point? One cannot always time the market, which is why consistent
buying over time is strongly recommended, but one can determine whether to be an
owner of PMs, or not.
The problem moving forward is fear of central bankers changing the rules and precluding
the purchase of any PMs by the public, at any price. Death and taxes are touted as the
two things one cannot escape, [not always true for the latter], but the certainty of lies and
deception by central bankers/planners runs an immediate third place.
The handwriting is on the wall, as most in PMs know only too well. We mention this for
those on the fence, those waiting for “bargains,” [misplaced values, there], and those who
have not yet purchased any PMs. Do not wait, do not wait, do not wait!
For futures, while most everyone is of the mind that manipulation is showing a steady
hand in PMs markets, that “hand” is losing its grip. It is the charts that show what the
market has to say about what those who are participating are saying about their decisions.
A not so simple statement, but one that says, watch developing market activity to know
what is going on.
That is always our purpose.
While ongoing efforts are being made to suppress the price of PMs and discourage their
purchase, mostly in futures markets, the “Discouragees,” [central bankers,] have been net
buyers of gold for a few years now, after having been sellers for so long, so do not go by what central bankers say, [often voiced through the puppetmeisters on daily financial
"news" programs], go by what they do, only in this area. Ignore them, otherwise.
The larger picture for gold is as bullish as ever. We provide two strong facts to confirm
why, on the monthly chart. Bullish spacing is referenced as such because it shows the
degree of eagerness of buyers in a market. It is measured by noting the last swing high
and the last swing low. Typically, markets retest previous swing highs. When buyers
are so intent on being long in a market, they do not wait to see if a retest of the last swing
high will be successful. Instead, they, [and by "they" we mean smart money participants,
or controlling forces], just keep buying breaks, creating a space that is bullish.
Another and related measure is the extent of a break, or market “give-back,” in a reaction
after a rally. Monthly charts are more controlling than the lower time frames, so the
information you can glean from them is more reliable and more pertinent. You can see
how the current break since the September 2011 high has been relatively shallow when
compared to from where the rally began.
Despite the “daily grind lower,” recently, the larger focus is very strong. Very strong.
A trading range is where smart money operates to accumulate or distribute their positions.
Controlling market forces require time to acquire positions so as not to disrupt their
attempted “sleight of hand” buys/sells during the process, and the TRs are also used to
discourage participants from following them.
We said last week that $1600 was a possible target, and it was reached on Friday. Will
that area hold? “NMT.” Need More Time to know that answer.
Points 1 and 2 form an upper supply channel line, and a further line down is marked by
dashes to show how it extends into the future, well ahead of price activity. Point 3 is the
low is between points 1 and 2, and it is from there that a horizontal line, a demand line,
is extended lower. It is also dashed to show that it extends into the future well ahead of
developing price activity, to be used as a guide to gauge potential support when touched
by yet to develop market declines.
You can see how the dashed line held the December lows, and now February is retesting
it, again. There is no evidence yet of a turnaround, and it does take time for a market to
The most interesting aspect of the daily chart happens to be the last bar, Friday’s activity.
It is a wide range bar lower, a sign of EDM, [Ease of Downward Movement], indicating
sellers are in control. The sharply higher volume is a red flag, a point in time for which
one needs to pay close attention, moving forward.
Remember, sharp volume increases are usually smart money either pushing a market even
more, or starting to take the other side in a transfer of risk. Subsequent developing market
activity usually indicates which. This volume day prompted a look at intra day behavior to
see if any clues can be gleaned.
We say smart money always tries to hide their intent, but volume is something they need
in order to move or accumulate positions, and they cannot hide that. If smart money sells
highs and buys lows, where is the highest volume in this chart? We ask, the chart answers.
The position of the close tells us buyers are more than matching the effort of sellers to
cause a rally off the low under such heavy selling pressure. The two preceding bars of
increased volume may “look” like selling, but it is quite possible that smart money has
been buying on the way down, taking everything offered by weak-handed longs selling
out and new shorts getting in.
If Benjamin Franklin had been a trader, he would surely have said, “Never a bottom-
Bullish spacing exists in silver, just not as strongly. We do point out how the past five
months of selling effort has not been impressive, relative to the two month rally prior.
It is like an Ali “Rope-A-Dope,” taking all the punches from his opponent, but protecting
himself so not much damage is inflicted, despite the effort against him. Eventually, he
comes out stronger to defeat his now-weakened opposition.
We show the same intra-TR channel down, just like in gold. Unlike gold, however, silver’s
low has held the lows of last December, a small show of relative strength within a negative
trading environment. Still, no apparent end is at hand in the decline of futures.
The best way to trade a TR? Not to trade it at all, instead, wait for a price breakout and
go with it. Why does that work? As mentioned, TRs are how smart money accumulates
positions. Once they are done, they then begin the mark-up or mark-down phase, and it
will last for some time, once it gets underway.
Just as a dashed line in a channel projects into the future for support/resistance, you can
see where the failed probe lower, at the end of December/beginning of January acted as
support. From there, a horizontal line is drawn. We made it dashed to show that is was
extended into the future much earlier than when current price activity has returned to it.
Will price hold current lows? No one knows, and anyone who says otherwise is showing
an unwise ego trying to be “right,” as opposed to being in harmony with the market. Any
bottom requires time in order to turn around, and any potential turnaround always needs
to be confirmed by price behavior.
The increased volume on Friday is a red flag, as it was for gold, but a red flag means a sign
of caution, to take note and see how price responds to it. That takes time. Futures players
have time, or at least the smart ones are exercising it.