Metals recap, 3/2/2012


Note: This will be my last post till April as I have no time for trading this month, and could use some time off, frankly.
I love how silver traded this week. My prediction from last week calling for a net consolidation turned out to be on the money ("though this week may show a lot of volatility, my guess for the weekly close is between $34.60 and $35.60, which will be the area between the 34-week and 55-week moving averages, in a pattern similar to 2009"). Note how ho-hum the weekly chart looks after the Tuesday melt-up and the Wednesday scare:


So, first, silver *finally* hit the downward trend line connecting peaks on the log daily chart and the daily-chart of closing prices:

This of course called for a dip and perhaps a longish correction, but what happened instead was another suspicious vertical drop, such as has been happening with great regularity, often at important technical points, though in shorter and shorter intervals, since November 2010 (as per "Ranting" Andy Hoffman's astute observation). This out-of-nowhere violence downwards had even (get ready for this!) Dennis Gartman crying foul ("The market's plunge may not have been solely the result of pure market forces, but may have been the result of a very real effort to 'manipulate' the market lower"), as well as bigwigs like Jean-Marie Eveillard (First Eagle) and Cesar Bryan (Gabelli), who appeared on King World News and joined Bart Chilton (CFTC, Hair Club for Men) in legitimizing Eric King as a trustworthy news source.
Note the gold-silver ratio had been following my green dotted-line downwards before moving up a bit in the last few days:
What to expect for March? I'm thinking we'll get a weekly close on the peak-connecting downward trend line on the weekly chart soon (see first chart), before another brief correction. I'm keeping an eye on the "10-year yield in silver" chart, which bounced off the blue dotted line yet again:
The purple channel continues to be resistance, and when you throw in the "10-year yields paid in crude" chart, which just hit the bottom of the channel this week:
as I explained a while ago, it suggests interest rates are going up, since I wouldn't bet on oil getting cheap any time soon. Higher interest rates suggest to me really high silver prices in the near future. At least that's how I will continue to bet until I see the heretofore highly reliable 10-yr/silver ratio chart lose its cred.

Gold performed worse, which shouldn't be surprising, as it appeared to be the target of the massive dumping strategy I alluded to above. Well, the bastards got the weekly out of the black channel. Kudos. Note though that that happened briefly in 2008 too (see grey squares). So hard to say whether we recover quickly or retest the red dotted line at $1650 in the coming weeks.
I'd be surprised (though not shocked; nothing shocks me) to see a move below $1650 on a daily-closing basis, because I believe the red channel on the below chart established itself after the late December shenanigans (when a deep correction to the lower blue trend line looked conceivable. Note that the top of the red channel is in the stratosphere).

Alright, good luck trading friends, and see you soon.
-GM

9 comments:

GM Jenkins said...

Here's Trader Dan Norcini weighing in on the interest rates--precious metals connection while taking a swipe at those pretending this weeks market action was natural ... a great read:

http://traderdannorcini.blogspot.com/2012/03/bonds-and-other-assorted-topics.html

Kid Dynamite said...

Gm Jenkins - you saw the possibility of a pullback in the metals, therefore you are clearly a BANKSTER SHILL.

Welcome to the dark side.

love,
KD

ps - sarcasm aside: the problem here is that everyone is looking at the same chart. when the pullback you predicted last week didn't happen, the "trend" shifted from "pullback" to "breakout".... everyone bought silver and set a tight stop in case they were wrong. Guess what - those stops cascade on the way down...

as Robert Sinn noted in gold:

"Finally, there has been a great deal of speculation as to what triggered Wednesday’s sell-off in precious metals. Such sharp downdrafts are usually a combination of several factors which combine to form a perfect storm. Heading into Wednesday there were several key ingredients in play:

Markets which had rallied significantly over a short period of time in anticipation of some key event (ECB’s LTRO2, Fed QE3 talk, etc.).

Bullish sentiment in both gold and silver reaching 3-month highs along with the highest speculative long interest by both large speculators and small traders since September.

CTAs (commodity trading advisors) were 76% net long of gold heading into the week – this always sets the stage for a potentially cascading decline as CTA trailing stop-loss levels are hit during a decline (they are often all using similar strategies with similar stop-loss levels…..)

So it is easy to see how one wrong or misinterpreted word from Bernanke could set off a chain reaction of events in such a market environment."

http://www.robertsinn.com/2012/03/01/another-look-at-gold/

GM Jenkins said...

Thanks for the link KD. Sinn's blog is great. And yeah, that's the null hypothesis - it's certainly a plausible case, especially considered in isolation. A related point is that if enough people become convinced the market is being manipulated, it will start manifesting those 'manipulated' patterns on its own.

GM Jenkins said...

I'd be interested in what you think of this guy's argumnet here though, KD:

"Indeed a common theme among all these reports is that a single seller hit the market without regard to getting the best possible price. Fortunately whether the selling was a deliberate attempt to influence the market or not, we needn't fear. The Dodd-Frank legislation enacted last year is designed to enable regulators to prosecute reckless behaviour regardless of intent. One would therefore expect the controversial legislation to trigger sufficient grounds to investigate Wednesday's chaos. Of course any CFTC comments regarding their intentions would be most welcomed by the public.

As to the possible identity of the alleged seller, the Bank of International Settlements is so far the one of the select few entities to lay claim to precious metals market manipulation: . However to corroborate such claims and give a clue as to how such gold and silver operations may be affected, the Bank of Japan was reported by the Wall St Journal on Feb 7th to have revealed it has engaged commercial entities to assist with secret currency interventions. It does not require a large leap of imagination therefore to wonder if central bankers may have found the occasion of Wednesday's appearance before the House Committee and Speech by their most prominent member, a tempting occasion to intervene in the gold and silver markets via the commercial banks.

Now my hypothetical question to the regulators is this: If the CFTC investigated such an occasion as Wednesday's gold and silver smash as they should, and found a commercial entity 'intervening' recklessly in the gold and/or silver market at the behest of a central bank, would that entity share the same immunity from prosecution as its central bank sponsor and if so, what oversight measures may there be to ensure the bank involved was not tempted to trade its own account for illegitimate profit as it carried out its sanctioned government business?"

Victor The Cleaner said...

Hi,

I know I am not Kid, but perhaps I may. This is the isolated COMEX point of view. Do we know where the selling started? No? Perhaps in the OTC market.

JPM is one of the major market makers. So perhaps they saw the OTC spot price drop and suddenly had an arbitrage opportunity: but spot or a short forward OTC and sell the closest COMEX futures month. So JPM might just have captured a few tenths of a percent from the arbitrage.

Yet the goldbugs only watch COMEX (because they cannot see the details of the OTC market), they see a large sell order coming in, and they cry JPM manipulates the market.

I am not saying I know who started the selling. It could even have been the FRBNY trading desk, sensing an opportunity to 'manage' the price. It could have been a hedge fund who bought the rumour and now sold in absence of the news. I simply don't know.

But the US-centric goldbugs who only know COMEX usually get it wrong.

Victor

Kid Dynamite said...

GM - a few comments:

1) whenever you hear someone use the term "not for profit seller" - which I've seen a lot lately in the Metals Mafia - your spidey sense should be on high alert for a dose of confirmation bias and believing what they want to believe rather than reality. Gold - whatever - I'm not going to get into a debate on central bank management of gold prices - suffice it to say that I think that the majority of goldbugs have an important causation/correlation wrong: If the dollar dies, gold price will rise for sure - but the converse is very much not true: if the price of gold rises it does not destroy the dollar. No one gives a crap about the price of gold except the goldbugs. (and don't give me 50 year old Fed Chairman quotes from when we had a gold standard!)

2) the idea that the price of silver is managed by some central bank is laughable, which just leaves the big "shorts" who we know aren't even really short to do the "managing" that the Mafia suspects. (again, Victor has had some good comments on this lately on other blogs, and I've written about it more than once. It was in the news again yesterday:

http://www.reuters.com/article/2012/03/02/us-commodities-revenues-idUSTRE8210PD20120302

repeat: JP MORGAN IS NOT SHORT SILVER IN SIZE.

3) If the silver mafia could understand this one very simple concept, they'd realize how moronic all of the "raids to shake out longs and make it so that the shorts don't have to deliver metal" nonsense that stems from a geriatric pharmacist who has somewhere between little and no experience trading financial products is:

http://kiddynamitesworld.com/price-smackdowns-do-not-deter-futures-longs-from-standing-for-physical-delivery/

and if you can't figure out who i'm referring to, email me...

best,
KD

Kid Dynamite said...

ps - what is driving me crazy lately are these idiots making videos about Netdania SPOT SILVER data... they take SPOT SILVER volumes, and decide that they're going to slap a 5000 multiplier on them (huh? do they really not understand the difference between spot and futures?) and then wonder how all of this silver can possibly be traded - a whole year's worth of mine supply in a single day!

hello - earth to idiots - it's not physical silver! it's TRADING. Not everyone who buys silver - no matter what market you're talking about - buries it in their backyard.

DMND turned over their entire float several times in the week of their accounting restatement announcement - shares are TRADED - back and forth - that's how markets work.

anyway...

Dr Durden said...

When I first saw the bit about the "failed smackdown" on the Netdania 1 min ticker, I hit my forehead so hard on my desk, all the silver in my computer shattered.

You boys have it correct: no matter how much and how hard you scream the facts, it cannot shatter the mindless acceptance the wandering silverbug holds within their co-opted head. Richard Dawkins would have a filed day with the lot.

Dan D. said...

Kid you have it right. I try to make that point on my own blog lately that we aren't dealing with the entire world's supply of physical silver trading in a day but instead we are dealing with contracts which is not metal but simply the option to buy or sell metal at a certain price. Whether one takes delivery is irrelevent at the time of the contracts exchanging hands.

It took me a while to weed through the drivel as I too was slowly succumbing to the mafia's arguments but I learned (thankfully) to just think for myself and trade what the market is willing to give me....putting aside all other nonsense.

As for Dr. Durden ... Hope your forehead is feeling better ... lol ... I miss you over on my blog ... hope you are well.