Setting The Stage
The action following yesterday's magnificent rise is very encouraging and following script. Is the stage being set for an epic battle next week? I think so.
So what about the price action is so encouraging? As noted yesterday, the beatdown of 4/12-15 was so sharp and so severe that it left virtual "air pockets" on the charts. This means that, as price rebounds, it runs into very little in the way of technical resistance points. The rallies of yesterday were halted and reversed overnight near/at two of the few points that we were able to identify, the 20-day moving average in June gold and the one line of horizontal resistance in silver, near $24.80.
The overnight high in June gold was $1484.80. As of this morning, the 20-day MA is $1487.80. This was close enough to inspire the remaining shorts to double down and turn price back but, after reaching back down to $1458, we've now recovered. With the lousy GDP number today, I expect gold to continue grinding higher on the back of an almost insatiable physical demand and this sets us up for an epic battle next week.
Recall that, prior to The Smashdown, gold had held $1525 as bottom-of-range support many occasions. (On the weekly chart, I can count a minimum of 11.) It was only after $1525 was swamped and overwhelmed on 4/12 that the bottom literally dropped out on 4/15. Thus, here is a point that you must understand: A gold price back above $1525 puts every single short contract initiated during or after 4/12 under water. Therefore, this level must be defended, even if it means doubling down and putting good money after bad. Perhaps some unforeseen headline will provide the impetus for a dramatic shove higher? More likely is an "Iron Dome" cap that attempts to stall momentum long enough that buying enthusiasm wanes and the shorts can then re-assert themselves.
The key to the game will, in fact, be the physical demand. IF IT CONTINUES AT OR NEAR THIS PACE, price will not be contained below 1525. It will rally through and move on to pressure the red trend line from the highs of early October. So, clearly, we are going to have to monitor demand very closely:
- Wholesale, tonnage demand in London and Shanghai, specifically.
- Delivery demand in New York. This includes the "non-delivery" May13 gold contract which currently shows an open interest of 1,422.
- Retail demand through the U.S. Mint, the RCM, the Perth Mint and others.
- Alleged demand for alleged gold in the allegedly legitimate GLD. Will it continue to be drained? What happens if retail investor demand ramps up and the 250+ metric tonnes extracted YTD needs to be replenished?
- Comex inventory demand. As of yesterday, registered (available to deliver) gold fell to just 67 metric tonnes. At the current rate of demand, this is barely enough gold to deliver and settle the June13 and August 13 contracts when they expire this summer.
So here are your gold charts. Again, let's watch $1487, $1500 and then $1520-30.
Silver presents a similar picture with several key differences. The main one is the size, scope and clarity of the "air pocket". Chart resistance for silver can be clearly seen at $24.80. Therefore, it's no coincidence that this is exactly where silver stopped last evening. On the bright side, after falling back over $1, silver has bounced right back and is near $24.60 as I type. Watch $24.80 very closely. Above there, silver has zero resistance until the 20-day MA near $25.30 (and falling) and, above the 20-day MA, zero resistance until $26. Then, just like gold, expect significant efforts to be made to keep silver from moving above $26 and back into the 19-month, $26-36 range because IF IT DOES, the picture will turn extremely positive from a technical standpoint. The action of 4/12-15 will finally be viewed simply for what it was...a nefarious and greedy stop-flushing exercise. Nothing more, nothing less. And all of this nonsense talk about "bull market endings" and "bubbles popping" can all be flushed down the golden commode also known as Paul Krugman's mouth.
Just two other things. One, I posted this in the comments yesterday but you may have missed it. Our pal, Andrew Maguire was on the Keiser Show yesterday. Nothing earth-shattering here as, unfortunately, Max jumped in a couple of times right when Andy seemed ready to make important points. Oh well, they offered to have him back on again soon so maybe next time will be different. If anything, this is at least extra proof for the intellectually-challenged who publicly claim that "Andrew Maguire" is a figment of Bill Murphy's overactive imagination. A far more plausible story is that Jeffrey Christian is, in fact, a heavily-disguised Chinese agent, sent back in time from the year 2030, whose mission is to deliberately talk down the price of gold so that The Chinese can accumulate as much as possible, at the lowest price possible, before asserting their control over the global monetary system for the 21st century.
And lastly, I haven't plugged this yet so I thought I would do so today. Kerry Lutz is having a one-day symposium in Dallas, Texas in late June. He graciously offered me the opportunity to be a featured guest but I had to decline due to previously-scheduled family time. That should not stop you from attending, though. It looks like an terrific event with speakers you should get to know. I noticed that Martin Armstrong is on the list of presenters. Hmmm. That ought to be interesting. Here's a link to check it out: http://libertymastermind.us/
OK, that's it. As usual, I'll check in this afternoon with some immediate reaction to this week's CoT. It should be pretty interesting again. For the reporting week, gold was up $21 while its OI rose by 2,000 contracts. In contrast, silver was down 81¢ but its OI was also up, rising by 1,700. Hmmm.
Have a great day and a relaxing weekend!