Sunday metals pre-game, 4/7/2013

Hello, friends --

Last week's action reminded me of late December 2011, when out of nowhere, following what should've been bullish news, the metals tanked. I called bullsh#t on that then, and I've done the same here, holding on to my position. Sometimes you gotta listen to the charts, but sometimes you just gotta protect your hand. Can gold really decisively break through it's 13 year (conservative) 99% trend channel after the Cyprus fiasco and the Bank of Japan's latest attempt at re-enacting Weimar?  

Go ahead, whoever the hell is pushing these markets around -- show me your cards. 

Whatever is going on, I suspect the Exchange Stabilization Fund (ESF) is involved. But what do I know? I like Warren's comment in a previous post:
[Re: common complaints about manipulation:] The observed effects don't tally with what is often presented ... the ones who really wield the power in the system do so from such a social distance that the little guys will never be able to comprehend what goes on  ... I am increasingly of the opinion that the nonsense will continue to expand, simply because humanity has opened the Pandora's box of complexity. Anyone attempting to describe such complex mechanics in his own perception (and within his own set of influences) will invariably produce stuff that we read on the silver blogs - sort of a 'Plato's cave' effect.

To perhaps help us to understand better the inner workings of the system through the prism of modern politics and foreign policy, it is now time for STFU to engage the services of someone at the center of such goings on. Or, at the very least, to recruit someone to regale us with tales of dodgy derring-do in the less travelled parts of the globe, and recount his experiences with the powerful, the great, and the not-so-good. To this end, I have recruited to the site His Excellency, Ambassador GM [Grey Mouse] Lemur, an old friend who has made it his business to be at the center of world events - to influence them for better or worse - and who has kindly undertaken to be STFU's Permanent Representative to the United Nations. Which, for a small(ish) blog like ours is quite a step forward, I think you will agree.

HE Amb. Grey Mouse Lemur will report back from the tropics, the deserts, and the snow-laden wastelands of frozen tundras in due course. Stay tuned.

Back to the metals ...

Despite the fireworks of last week, the "three line break" charts we've been looking at (see here for background) tell us that nothing all that significant has happened just yet. Note that on the weekly gold chart below, gold didn't even make a new red bar, as it finished the week higher than a weekly close back in February.  

And look at how remarkably "clean" the chart patterns have been -- you typically don't see that kind of textbook regularity. In this chart, corrections (red) all extend at least 3 bars, and therefore all have required a "three line break" to reverse. But, when the upside reversals do come, they have always had legs. It is thus encouraging that the last two red bars have been very small, meaning a three line break reversal from here will be easier. All that's needed is a ~$1615 weekly close.

Similar regularity on the silver weekly three line break chart. Here, too, all that's needed is a ~$28.75 close for a three line break.

And as far as the monthly charts are concerned, I've just re-posted the ones from my older post linked above (Feb 22), because they haven't changed. April would have to finish below ~$1450 (gold) and below ~$27.50 (silver) before any major reversal can be said to have happened. 

I don't think we're going to see that happen, so I remain cautiously bullish.

Finally, let me update my new indicator ideas (based on principal components) from two weeks ago.(See here and here for background.)

Starting with the volatility based "holy grail" indicator, as predicted, the second indicator (red) has indeed followed the first one (blue) down into negative territory. Note that this happened on Friday, which you can see on the second magnified chart below. When the red indicator follows the blue indicator into the red, it has always meant a big rally in the past (and in fact has reflected bottoms with precision).

My other second principal component indicator turned up (bearish).

I (carelessly) jumped the gun in my post when I wrote: "If gold drops precipitously from here without a strong move up first, that would be unprecedented."  Looking at the indicator, it's clear that it actually had to fall a little bit more before a reversal would have been unprecedented, and instead we got a false change of direction, similar to what has happened twice since November. In fact, the action is very reminiscent of the previous correction last summer (see red circles). Let's see how this all plays out. Next 2 weeks will be exciting.


S Roche said...

fwiw Lance Lewis is coming to the view that for the US $85Bln/month is just not enough to escape the deflationary vortex, he sees this as the only rational explanation for gold's failure to fire in USD.

I note that gold in Euros held above Eu1200, a key upper channel support line.

Lance expects murmurs to start around the May FOMC and an INCREASE in QE to be announced at the June FOMC. He thinks this could be a shock to some people. He expects gold to sense this and to start increasing (possibly from lower levels than today) on no particular news...

GM Jenkins said...

Thanks S Roche. Not sure who Lance Lewish is, but that sounds like a sober and very possible prognostication. Compare to Jin Sinclair, who's been flailing about lately and the KWN Krew who often make predictions that just don't pass my "that could happen" test. Poor Embry seems a tad defeated lately. The first line of his latest interview: "Today John Embry told King World News we are now headed toward a catastrophic ending." Eric King, always a stickler for fresh material. (Btw, does Eric King ever go on vacation or get sick or whatever? I realized the other day, his interviews have been posted like clockwork for like 3 years now)

Percival Pinotage said...

You say the next two weeks should be interesting.

Well Charles Nenner does fancy cycle work and in his latest interview on Financial Sense (Jim Puplalva) he reckons gold should bottom out in April and start heading up strongly and for two years from the start of May. He recently warned against buying at the end of March, saying there would be another dip.

I don't follow the guy closely, but Jim Puplava has spoken about how eerily good some of his calls regarding timing of his cycles have been.

For what's it worth I'm waiting for one more big dip to the low 1540s or 1530s, or, if it doesn't come, I've been planning to buy within two weeks or so, very very heavily. We'll see if it pays off.

Thanks for the blog.

S Roche said...

beep, beep, beep...backing up the truck!

GM Jenkins said...

I'm not so sanguine, S. Roche. Some substantial (but not yet serious) long term technical damage. But for the sake of my recent call options, I hope you're on the right track.

mickeyman said...

They showed their cards alright--a royal flush!!

GM Jenkins said...