28 January 2011

Gold Daily and Silver Weekly Charts - Potential Intermediate Bottom in Gold

The almost incessant bear raids on gold and silver took a break today as what economists like to call an 'exogenous event' took risk off the table, triggering a sharp flight to safer havens.

The gold and silver markets were short term oversold, in honor of Comex option expiration. Given an apparent free pass from the CFTC, the wiseguys were whooping it up in the paper metals markets, extending their leverage and selling short.

A hedge fund with a spreading strategy blew up earlier this week, leading to a massive decline in open interest and a sharp selloff in gold. One might surmise that this pigeon had been carefully marked out by his bankers for the slaughter, and it only needed the sanction of a poor GDP number, an FOMC decision, and the all clear from the regulars and the regulators to pluck the unlucky ducky. Perhaps he will have more time to spend at the poker tables, for he is a ranked player.

Silver made an exceptionally sharp rebound, again highlighting the artificial nature of this market and the price suppression. Some day the Comex will blow up in a default, and weighty people with grave pronouncements will opine endlessly on bubblevision about it and the need for 'new regulations.' But at the end of the day, it will be the investors who trusted in the integrity of the market who will be the losers.

A third chart has been posted. This is a very tentative analysis of the gold market, and a possible formation that we noted earlier this week that might be activated around the 1300-1310 support level. We had not expected this to happen until next week, into a possible cycle low point, but sometimes things happen and the market adjusts.

Too soon to print this one, but I wanted to share it from my 'private stock' of charts which I watch for my own purposes and needs.

I like gold, but silver looks more likely to be the irresistible force this year. I particularly like it because it is still so narrowly owned and little understood. When a certain contrarian bellwethers I watch become bullish of silver I might consider selling some, but not until then. And it appears as though it might have a long way to go, with lots of volatility and corrections. Never boring.

My biggest concern as always is the general liquidation panic that sweeps aside all assets, and in which everything is sold. This is hard to predict and not a common occurrence. The steady decline is more likely. There is an interesting divergence between stocks and gold/silver these days. It certainly worked this week. Short US stocks and long metals was a double barrelled blast.