I'm going to be out most of the day today so I thought I'd give you a comprehensive update on our Big 4 - gold, silver, the POSX and crude.
Let's start with the world's reserve currency (for now). We discussed last week the likelihood that the POSX would run into stiff resistance near 76.50 and, in fact, it did. Having since rolled over, The Pig is now seemingly caught in a pennant formation that looks to contain it for the next 4-6 weeks. IF this plays out, it's not necessarily a bad thing. A rangebound PO$ essentially neutralizes it in its effect on the PMs.
Now let's look at crude. I had hoped for a quick bounceback to above $96 but I don't think we're going to get it. Monday's rally appears now to be just a snap back from oversold conditions. Watch the $93 level very closely today and tomorrow as a downward breach of that level would confirm that a test of the lows of last Friday are in the offing. At this point, I'm expecting new lows near or just below $90. Then, another rally back up toward $93. A retest of the $91.50 level would then give us a reverse H&S bottom from which crude might finally mount a successful rally back above $96 and toward $100. This whole process could easily take the entire month of July to play out so don't get impatient and move too soon.
If crude plays out as I've described above, it would certainly fit the pattern I see in silver. Again, I agree with Trader Dan that silver will need an inflationary environment to once again outperform gold. An inflationary environment will be signaled by rising crude and crude looks like it might not be rising again for 4-6 weeks. So, does silver look that way, too? It sure does. Though I'm very happy to see it moving higher, it looks to run into considerable resistance near $38. Note the confluence of the old trendline (marked in dashes) and the current trendline. It will be extremely difficult for silver to move through there. For now, I'm essentially out. I still have my July $40 calls which are, for all intents and purposes, worthless and I'm not buying any more. Like crude, it may be August before silver begins to look interesting again.
I've saved, however, the best and most fun chart for last. I mentioned yesterday that I'd moved back into some gold options and, right now, I'm glad I did. This chart looks great. The double-top that was so expertly painted earlier this month has now been completely violated and upside momentum is strong. The only question now is: What dirty tricks will The Cartel implore this time as they try to keep gold from making a new all-time closing high?
1) A margin hike? Unlikely as they just lowered margins last week.
2) Aggressive creation of new paper gold? Doubtful. Global demand is so high that new shorting would just exacerbate the already tenuous short position that The Cartel must maintain.
3) Rumors of central bank or IMF selling? Maybe. The IMF rumor could get legs as people would believe it as it pertains to raising cash to fund the PIIGS.
Hmmm. Let's go with #3. Watch for that headline later today or tomorrow. In the meantime, if nothing is done to stop the advance, gold looks certain to take out the old closing high of $1558.40 set back on May 2. From there, it will set its sights on the intraday highs of $1577.70, set on the same day, oh so long ago.
In August gold, I have a last of $1554.30 after a high trade of $1559.20. It's going to be a very exciting and fun day. Sit back and enjoy the show. I'll have more for you and a recap by later this afternoon. TF