Read This Now

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Tue, Aug 30, 2011 - 4:21pm

No catchy title to this update. I just want you to read and ponder this post. Then, plan your trades accordingly.

Let's start with silver where the technical picture is more clear, at least in the traditional sense. Take a look at the chart below:

I've shown this chart several times in the past week so it should look familiar. Something new caught my eye today. Have you seen the new OI numbers? Our friend, "Tesla" has taken it upon himself to update the comments section with the latest numbers each afternoon. (Thanks, Tesla!) Keep in mind that the OI numbers are always basis the close yesterday. So, today's numbers show us the OI from Monday. That said, the number is once again amazingly low at 112,795 contracts. Again, as a reference, the OI in late April was approaching 150,000. Fully 20-25% more! Now stick with me on this. Maybe I should lay this out chronologically to make it easy to follow? OK, here goes:

1) Since silver bottomed around $34 in early July, the channel I've drawn has contained price.

2) Note that on two occasions, 7/13 and 8/19 (points 1 and 2 on the chart), silver decisively broke through the mid-line and proceeded to move sharply toward the top line.

3) Total OI on 7/13 was about 113,000 contracts. By the peak on 8/5, it had risen to about 119,000.

4) Total OI on 8/19 was nearly 116,000 contracts. At least week's peak, it had risen to nearly 122,000.

5) Today's OI is all the way back down below 113,000.

6) Look closely. Price once again sits poised to burst through the mid-line, which is near $42.

Conclusion: Watch price and OI very closely for the next 48 hours. IF silver accelerates through $42 on rising open interest, there is a very high likelihood that it is once again making a move toward the top of the channel. A move that corresponds in magnitude to the previous two would take silver to 45.50-46.00, perhaps as early as next week.

Now let's move on to gold. When I say it's not as "traditional" technically, it's because I'm using this crazy, reverse pennant as a forecasting tool. I'm not sure you're going to find the "reverse pennant" in any books about TA but I'm quite sure that none of those books ever anticipated the end of the dollar, either.

Similar to silver, gold currently sits very close to the midline of the pattern. Note that the previous two occasions when gold broke through the midline (mid July and early August), gold proceeded to ride the upper trendline for about two weeks before falling back. IF gold can once again break through the midline, it will likely charge toward the top line again. This would take the price to near $2000. The OI numbers in gold are similar to silver, too. After peaking at 532,000 last Monday, total OI as of yesterday is all the way back to 501,000. A drop of almost 6% in one week!

Conclusion: We may be on on the verge of another massive rally in gold. Your signal will first be a move through yesterday's high of 1841.50 and then a burst through the midline, currently in the area around 1850. Should gold move conclusively through 1850, it should move to new highs in relatively short order and then continue to make new highs through mid-September.

WARNING: Don't go getting overly excited and carried away at this moment. Nothing is pending until the metals break through those midlines. The open interest numbers suggest that the breakthroughs will come in the next 24-48 hours. They may not. If they don't, I will continue to monitor these charts until they do.

I feel that this is pretty important info so I plan to leave it up all night as the lead, above-the-fold story. I will probably leave it up tomorrow, too. Be sure to refresh the homepage from time to time if you're looking for updates as they will be attached as addenda to this post. TF

9:15 EDT UPDATE:

Sort of a bland trade this morning. The metals tried to rally overnight but they were beaten back at the regular, appointed hour of 3:00 am EDT. It appears, at this moment, that the metals will struggle to trade higher today. 1841.50 is still acting as a resistance point for gold and silver has yet to reach 42, yet alone 42.30. Let's just sit back and watch and see what the day brings us.

A couple of other things...First, this silver update from GoldCore via ZH is worth your time:

https://www.zerohedge.com/news/silver-ready-breakout-technicals-and-fundamentals-suggest-50oz-early-autumn

Second, a friendly reader sent me this chart of the open interest in silver since March. I have neither the time, inclination or technical know-how to superimpose the actual price of silver onto this chart. However, it would probably be a rather insightful thing to do. Anyone want to take a stab at it?

That's all for now. TF

10:50 EDT UPDATE:

This is certainly something to watch over the next hour or so.

About the Author

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turd [at] tfmetalsreport [dot] com ()

  620 Comments

mrgneiss
Aug 31, 2011 - 12:14pm

@Ninja report - most of the

@Ninja report - most of the contracts have already rolled out of Sept into further out months, yesterday we were at 7000~ down from a high of over 60,000 a few weeks ago. It's good to be cautious but IMO bullish factors outweigh bearish factors:

1. This is one of the biggest delivery months for silver, and during these months silver has a tendency to rise strongly through the whole month after weaker and weaker initial hits (except for last May).

2. Registered is still near record lows.

3. Still have large short position with potential for short squeeze once silver is over $45.

4. Low OI as pointed out numerous times is one of the strongest indicators of a near-term bottom and makes it almost impossible for anything more than a minor hit to occur.

5. More QE is just a matter of if not when.

6. China is on track to replace India as the world's number one gold consumer, which is incredible if you think about it as Indian gold demand is growing strongly - and many in those countries as just STARTING to turn to silver as a cheaper alternative - and we're heading into the strongest buying season for both of these countries and cultures.

7. Any recession will mean a drop in base metal miner production - where 2/3 of silver supply comes from.

Not to mention my favorite chart:

Silver

TruBlu11 mrgneiss
Aug 31, 2011 - 12:16pm

@ mrgneiss re: response to Ninja

Thank you for that excellent and accurate response to Ninja.

silver foil hat
Aug 31, 2011 - 12:17pm

see wb conspiracy thread

I'm still leaning to calendar, not trading...

Jasper
Aug 31, 2011 - 12:17pm

When not If?

Mrgneiss, I believe in point #5 you ment to say "When not if"?

ScottJ
Aug 31, 2011 - 12:18pm

The Revolution has Begun... (Bacon)

No... not the American revolution, or the spiritual revolution.... but the bacon revolution.....

https://www.fargginay.com/

The Revolution has begun...

The year was 1920 and quite by accident John Fargginay, a Parisian butcher discovered the ability to dramatically elevate his customers' mood with a secret recipe blending 11 popular pure essential oils with the essence of...bacon. As the story goes, film stars & heads of state would frequent his shop to procure the magical elixir. With a wink of the eye and the secret code, "fargginay," customers would be slipped a discreet pouch containing the formula said to trigger pleasant memories. After a massive fire on July 4, 1924, the business was lost and so was the formula…Until now. Ladies & gentlemen, behold, bacōn fragrances, by fargginay. The time has come to uncover a new level of awesome.

cpnscarlet ScottJ
Aug 31, 2011 - 12:21pm

ScottJ - Please explain (briefly)

"Corruption-based life"? I'm a more than a bit curious what you mean by that.

Even if the EE is destroyed, that doesn't change human nature. Even if the Fed is toppled, people will still have to work at being "good". Even is Obama is ousted in a grand display of patriotism, we still need governance.

I hope you're not trying to make us believe that as soon as true price discovery comes to PMs, we have some new nirvana? All I'm hoping for is the "great correction" or "great reset" where we can get back to the Constitution as the Founders intended it to be along with some of the better lessons we learned since then. I want an economic reset so the myriad of Federal bureaucraps are the ones starving in the street, trying to make a dime selling raw milk.

Shill
Aug 31, 2011 - 12:23pm

When life hands you lemons...

https://whispersfromtheedgeoftherainforest.blogspot.com/2011/08/when-lif...

The writing is on the wall. It is only a matter of time before the manipulated paper game hits the wall. And when it does, Silver is going to move parabolically truly making it the manifestation of what Eric Sprott called the Opportunity of the Decade. Lemonaide anyone?
mrgneiss
Aug 31, 2011 - 12:25pm

@ Jasper, yes, I meant QE3 is

@ Jasper, yes, I meant QE3 is a matter of when not if, and thanks TruBlu11, but I'm sure I missed a bunch, that was just quickly off the top of my head.......

¤
Aug 31, 2011 - 12:28pm

mrgneiss

I like that seasonal silver average chart. Long term trends are important

I wonder how much the last 2 years has skewed the average on the chart or if the patterns holds true during this erratic stretch the last couple years where silver has risen pretty dramatically overall.

RuNuts Tom L
Aug 31, 2011 - 12:28pm

Re: $60 for ASE's?

That's about what my ASE proofs cost about a month ago.

raulv
Aug 31, 2011 - 12:34pm

@1841 Gold

We're 7 bucks from that level, which is not that much for gold, therefore I could call it a wrap, since we're "almost there" it doesnt have to print 1841 to be at that level

IMHO

ScottJ
Aug 31, 2011 - 12:36pm

CPN Scarlet

Since I started looking into this field heavily a year ago, I have used gold and silver as a timeline of how far along "global events" are progressing... or a "health of the state gage." No, I am not linking PM's going up to releasing a "corrupt life embedded from birth," instead the fact that PM's rising will also bring many other "unwanted" consequences in life for the vast majority of people. It is in these consequences (with financial tyranny comes political/social oppression) in which if the population will initially react in fear and hate instead of understanding and acceptance. The more people who have a clue, the better the chance humanity makes it to the other side of the great end of the keynesian experiment.

If we are to separate from one another (spiritually, physically, and emotionally), then it will be very easy for the "EE" to carry out other acts of oppression. The "EE" is not just hanging out in the Precious Metals market, as it lusts for power in all dimensions of our life. The "EE" are the Military Industrial Complex, the big corporations, the oppressors of indigenous nations, the suppressor of revolutionary technology (medicine, energy, etc...), the whispering voice in many western world governments, and so on.....

I believe what we are living in what now is nothing more than "the twilight zone," as the people have lost touch with reality, and I just rant in hopes that others don't get caught off guard for the changes that are coming in every aspect of our lives.

This is much much bigger than PMs.... but PM's are the achille's heal of the fiat system.... which is their central means of power which enables all of the other corruption.....

Just saying... it could really be an all day discussion on this subject...

Tom L cpnscarlet
Aug 31, 2011 - 12:39pm

@cpnscarlet

Even if the EE is destroyed, that doesn't change human nature. Even if the Fed is toppled, people will still have to work at being "good".

You know, I'm not sure this is the right way to look at it. I think that people will take advantage of whatever situation is presented to them. If there exists a possibility to take something from someone else without reprisal a person will tend to do it. This is true in any context from inter-personal to the capital markets.

Invariably, when you look at an imbalanced market there is always some gov't intervention, no matter how well-intentioned, that creates said market imbalance and by the nature of gov't fixes it as permanent, as opposed to the market which will see the imbalance (arbitrage) and seek to reduce and eliminate it.

It's this process of institutionalizing corruption that is the heart of what we're fighting against and responding to by betting on the end of the Great Keynesian Experiment. If you want approach (not achieve, b/c that's not possible) a corruption-free environment then you have to embrace voluntary interaction at all levels of human contact. The issue we have now is the inertia of multiple generations of people inculcated in some socialist ideology, be it Fascism Communism, Progressivism, Moronism, etc, and the deleterious effect on perception, world-view and limbic response to stimuli that exists all through the societies.

I could go on about this for weeks. I'll stop here.

Ta,

Dr G
Aug 31, 2011 - 12:41pm

@DPH

I too would like to see that seasonal chart updated to include more recent data. Certainly 2008,09,10 and now 11 have been different for silver than were those earlier years.

There will also come a point where that chart will be worthless because the moves and gains in silver will be so drastic that it will overshadow all of that other data. Maybe 2010/11 was the start of that, but we won't know without an updated seasonal chart.

cpnscarlet ScottJ
Aug 31, 2011 - 12:42pm

@ScottJ - Thanks, I see where

@ScottJ - Thanks, I see where you're coming from. If we get 25% of what you're hoping for, it'll be a good event.

TruBlu11 ¤
Aug 31, 2011 - 12:43pm

@DarkPurpleHaze

The breathtaking moment will come. In textbook chart fashion, gold came back to the 1830-33 level and built a base for the next move back up to 1841ish (and hopefully over) to 1855. Now we just have to see if we get that bounce through 1841 today or as ScottJ posted earlier, if we don't, we may go down tomorrow. I think gold is strong today, so I favor the bounce up and through today but I think he is correct.

BTW-keep the music vids coming. Love them.

Shill
Aug 31, 2011 - 12:49pm

Jobs, with every company

Jobs, with every company Obama states is great closes their doors.

Another one bites the dust.

Solyndra to Declare Bankruptcy | NBC Bay Area

Is this President for real or what? And where the hell is Congress? Oh wait I forgot. on vacation. Hard working fellows.

Ninja Report mrgneiss
Aug 31, 2011 - 12:49pm

@mrgneiss

Good info, and like you, I remain long-term and even mid-term bullish in both Gold and Silver for all the reasons you list and a few more. My physical remains quietly stacked in a dark place.

My risky leveraged Silver paper positions, however, have been closed today and will remain so for the next few days while I watch for the typical short term craziness that pops up at certain times. I will likely wait until after the NFP report before wandering back in.

If gold hits a dip, I may buy into it, but for the next few days, I will sleep better with some dry fiat powder.

Swift Boat Vet
Aug 31, 2011 - 12:53pm

OK ScottJ I give up

What was this protest against anyway?

mrgneiss
Aug 31, 2011 - 12:57pm

@Ninja Report - I agree that

@Ninja Report - I agree that a lot of traders are probably waiting for the NFP to clear before getting back in and that is probably a smart move for any leveraged silver products. Good to hear you're a long time bull! I'm not a perma bull either (well, I am in the long term sense), and I was advising people on Kitco to get out or buy protection back in Mid-April.

Fortinbras Hard Rain
Aug 31, 2011 - 1:01pm

@HardRain re: Taxes

Yes, if you sell your gold or silver, it is taxed at 28%, technically/legally speaking, on ANY amount.

That said, most dealers will tell you, "That's between you and your accountant." If the transaction is more than $10,000, then yes, they do have to report the transaction to the IRS. Some people will tell you, "Go sell less than $10,000 at a time," but if you ever get audited, good luck.

As for swapping silver for gold and vice versa, it DOES fall under "1031 - like kind exchange" and is thus a "non-event" in terms of taxes and I have done it several times. HOWEVER, your broker will treat it as a sale and a purchase. It is up to YOU to take care of the tax paperwork and the swap must be transacted on the same day (even if you don't take delivery of what you swapped for for a few days or weeks). By this I mean the following - I coordinated with my broker, brought a truck load of silver to his place where I "sold" it to him and "bought" gold, but the gold didn't get delivered to me for 2 weeks, but the "transaction" was on the same day. I do the swap with my broker, paperwork with accountants. There are some brokers out there in the world who will handle all the paperwork for you too, but I prefer my local guy for a whole host of reasons.

Hope that helps, keep your nose clean. It's rarely worth it to try and skirt the system... the way IRS computers work takes YEARS to catch up to the paperwork. I can guarantee you this... if you conduct a reportable transaction, and the broker sends paperwork to the IRS and you don't report it that year, here is what will happen... nothing... for several years... you think you are free and clear... then, 4, 5 or 6 years from now, you get a letter from the IRS because their slow assed computers finally found a 1099 from your broker and no match on your return. You now have an issue.

Again, some brokers are "more friendly" than others, but keep your nose clean IMHO.

Vincent
Aug 31, 2011 - 1:03pm

horror2

New Dual Hurricane & Tropical Storm Threats Going Into Labor Day Weekend
https://247wallst.com/

Chicken Little
Aug 31, 2011 - 1:04pm

Seasonality Charts

Slightly more up to date. From Zeal.

Regards, Chicken

Dr G
Aug 31, 2011 - 1:05pm

Stupid IRS. Fortinbras is

Stupid IRS. Fortinbras is right on the money. Last year I was audited from several years ago when I was in residency. Lived in New York. Made $44k that year. They discovered that I owed them $13.40. Wonder if all that trouble was worth it to recoup their $13.

Physical_only
Aug 31, 2011 - 1:06pm

@Hard Rain

First I am a stacker, & would FIRST buy 5 or 10 oz bars, ASE's, Or Maples on any dip in price. Having done this for 6-7 yrs. I entertain myself by watching & sometimes participating in numismatics. Requires some homework on mintages & popularity, but once in a while you get lucky.

In 2006 you could have bought a 2006 20th silver eagle set from the mint for +-$100 & 6mos. later or less they were selling for $400-$500; turned around sold them & bought bullion with the profits.

So if you can/or are interested in flipping something for a profit " hopefully " & it provides more profit in less of a timeframe than bullion at the time so you can build a bigger stack.

Numismatics is definitely not for everyone & simply stacking bullion is HIGHLY recommended.

I also have a retail store so in my case if I've made a wrong call I can always blow them out at cost. Some "coins" I buy just because I like them.

A more recent coin I found interesting were the 2011 Canadian 1oz wildlife wolf coins, "bought at $22 & liked them so well, I bought again at $25 ";priced the same as a bullion coin initially, lower mintages than the next coins in the series, & the people that already had the 1/2 oz ones exactly like the 1oz design from a few years back "which were very popular" would probably want one. They have gone up quite nicely compared to say 2011 ASE or 2011 Maples even though I bought those too.

Within the last month I bought some 10oz bars when the cost dipped below $400, so I just keep stacking.... GL

Tecumseh
Aug 31, 2011 - 1:10pm

IRS

Fortinbras--I think you are right, especially about keeping it all 100% above board and in accordance with the law. Any excuse to take down gold investors will be used to maximize fines and seizures. My best guess is that the IRS computers and processes are more than capable of keeping up with these transactions and their tax consequences. It is just more effective to go after people four or five years later. Records get lost, memories fade, people are off their guard. . . Much easier to nail someone later than presently.

The tax consequences are the worst part of PM investing. One way or another, it is very easy to screw up your tax accounting with this stuff. When you do, they will be waiting to hurt you.

mrgneiss
Aug 31, 2011 - 1:10pm

The seasonal chart is far

The seasonal chart is far from perfect, I agree guys, it's just a nice piece of data to add to the collection of data points including OI, Silver institute stats, inventory, price, supply/demand etc etc. I do like the fact that it is a 37 year chart - which makes it somewhat statistically significant. It has worked for me since the end of June this year, we did see a low the last week of June, and some ups and downs since then that were close to the chart. Of course it was way off for the first half of the year, Jan was down, where the chart predicted up, and of course the explosion in April that the chart didn't predict - but IMO opinion the price action we saw over the first five months of 2011 were a better representation of the EE at first trying to shake out longs (Jan) and then panic short covering in April (due to the WB group??), then of course an attempt to scare silver investors out of the market for years in May. Fail!

Dr G Chicken Little
Aug 31, 2011 - 1:11pm

Thanks for the slightly more

Thanks for the slightly more updated chart. I think we can all agree that this next seasonal leg up should take us up to where we were in May, roughly $50. Then some profit-taking/consolidation through a portion of October, followed by another large taking us above $60.

EDIT: I have a last of $41.94. Here comes our $42. Above that and we should catch some wind in the sails. NICE to see silver moving up even while gold sits idle. Open interest numbers should be interesting to look at tomorrow.

Tom L
Aug 31, 2011 - 1:11pm

SVM 15 minute chart

Is showing a Decision point coming up. It looks like it should break higher in the next few minutes. The next assault on the $9.25 area is very possible.

Gotta run and make the daughter some lunch. BBiaF

Ta,

SuperManny
Aug 31, 2011 - 1:12pm

@mrgneiss, that chart is very

@mrgneiss, that chart is very interesting... if this is a typical month [Sept.] it should be a lot of fun!

Just to clarify... did you mean this, or is it a typo? "5. More QE is just a matter of if not when." Just making sure you didn't mean 'when; not if' as I'm starting to think.

EDIT: OOPS! I see you addressed that already... thanks!

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