The gold correction isn't over

Hey, look, what do I know? I'm just an idiot with a Mac G5-based 1100-node supercomputing cluster that runs off of 324 dual-quad core 2.8GHz Xeon processors and offers me a sustained performance of just over 12 teraflops. But though I'm looking to take an aggressive long position in gold and (eventually) silver, now is not the time. Especially if you're considering calls. I've sold the last of my puts, mind you -- I wouldn't bet on too much more downside (see above chart), and a relief rally may start next week -- but I'm confident a new low will be made in the next month.

The Commodities Channel Index (not to be confused with the Continuous Commodity Index, which measures the price of a basket of commodities and which I follow) is an indicator that looks at how the current price differs from its average price over X days (I set it to 50). It's based on average absolute deviation units, so it's interpretable over time. Anyway, if you'll look at the chart below, whenever it dips violently, there's always a second shoe to fall. Interestingly, the last time I busted this chart out (last spring) when the index was at its lowest point in decades (note: quickly approaching that level now), that was the only time in over a decade that gold hit the green line but didn't go on to make a new low, but even then price soon dipped violently again before moving sideways for the next few months, giving options buyers plenty of time. I'm posting two versions, the first over a shorter time frame so the resolution is better.
Simply put, all the moving averages have been broken and many important trend lines as well. Gold almost never recovers that quickly from these sell-offs.

I think it will move essentially sideways until the end of the first quarter. Here's what I think will happen until April. Oil will outperform gold which will outperform other commodities including silver.

I see the "Gold Safe Haven Quotient Chart" testing the dotted purple Fib support line. That's my guess as to when equities will have a major correction, by the way.

I dont see the $GOLD:$CCI ratio going down much more:

Silver got smashed right as the 34-week MA (pink) was ready to cross the 55-week (green), which, when it happens, will be bullish. Interestingly, the last time these lines looked ready to cross was last October, after the post QE-3 bump, but silver got kicked in the teeth immediately then too.

The purple band has to be watched. If it's broken, I might buy SLV puts, as I'd guess $27.50-$28 would find strong buying.

But the weekly log chart suggests that silver's correction will be more violent than gold's. Importantly, the red dotted line was broken.


Warren James said...

Turd says 1500 won't be broken, I think. But RSI is in the toilet right?

I agree, sideways seems like the best bet right now. Silver had better put in a sudden and stellar performance if it's to do the 30-year cup & handle formation I've been wanting, looks like a washout so far.

p.s. I need some hours on your super computer cluster, trying to crack the password on the 2007 SLV PDF ;p

Funky Tape said...

Thanks GM.

Ok if I post some chart links? Gold, silver and crude 5 year weekly with COT data at the bottom. If the trend continues, gold is getting close as far as the commercial shorts are concerned, silver no where near. Crude still going strong but the Large's are really piling in.

Personally, I'd like to see everyone and their sister off the bus '08 style. High volume, GTFO type action. But I somehow don't think it will happen.

Oh, and APMEX now has plenty of 2013 ASE's which they bought back for $2.50 OVER spot a few weeks ago. In fact, they were in such a tissy to tell everyone on their email list to buy sub $30 silver that they didn't even have time to run the spell check: hurry, get your "sivler" today! You just cannot make this shit up.

Bullion Baron said...

I think we are getting close to a short term bottom at least, the commercial net short position is lowest it's been since August last year when Gold rallied $1600 to almost $1800. We saw decent volume on Friday which would have likely seen this position further improve the commercials positions (reduce net short). It broken an important figure which would have cleared out a lot of speculators. If Friday wasn't the bottom I suspect it is close.

Re cup and handle, Warren see this chart here (not mine):