Sunday pre-game

After hitting the top purple line and then dropping precipitously last week, it certainly looked like we were getting a repeat of the other two times gold hit the top purple line on this chart below: namely, a drop all the way to the 144-day moving average (orange). However, encouragingly, it bounced off the middle purple line, and made it's way quickly back to the top purple line (see magnified box).

In the next few weeks, it's hard to say if gold will stay within its new trend channel, or blast through the top purple line (post- Labor Day is, after all, the strong season for gold), or whether (as Turd Ferguson says) a head-and-shoulders top (or perhaps a double top) will be painted, and gold will plummet a few hundred dollars once again. The 144-day moving average is approaching its 3-year upper bound (grey dotted line), which signifies an impending major correction. The 200-day moving average, however, still looks like it's moving in an orderly straight line. Stay tuned.

For silver, I realized that the line I drew connecting its two lower-most points this year actually forms the top of a trend channel, the bottom of which was perfect support last week. My guess is silver stays within that channel. FYI, the top of the channel will hit $50/oz in the middle of October.


Warren James said...

The silver chart is looking less and less like 'fear, capitulation and despair' from the bubble chart [..]. Silver looks solid. Reassuring for anyone long physical.

GM Jenkins said...

Good point, Warren - the "dead cat bounce" (i.e. bull trap) point on the canonical graph would've fallen in May.

Also, a point I made in our previous discussion - gold and silver prices are correlated at like 0.8. Those who say one metal is in a bubble and the other isn't need to acknowledge why such a decoupling should take place, and to my knowledge they seldom do. Peter Schiff also makes the point that the gold bubble callers should give a target price: e.g. $400 gold sounds about right. If it falls back to $1450, that's no bubble - it was just there in July.

Warren James said...

On the web (and relating possibly to your 10Y bond links) Gross is regretting betting so heavily against bonds: link.

Louis Cypher said...

From WB,
If silver doesn't dip below $36 in september
then the stock price of JPM will be below $30 by the time it reports its earnings. And after The Morgue reports its derivative losses in October, will The Morgue even be in the 20s anymore? Hang tight, it doesnt seem like we will ever see a silver price below $36 again which means The Morgue is "deaded".

Deaded-as in past tense of dead.

What are you gonna do, Jes? Now we want your head too.

You're going home in a body bag, do da, do da....

Louis Cypher said...

Another bold statement from Wynter_Benton. Not long now before those derivatives blow up.
It's good to have real internet access back and not rely on a mobile phone with slower than dial up speed. So what did I miss?

OC15 said...

It really bothers me that gold is several hundred dollars above its 144 and is just sort of hanging there today.

Lot said...

there's a follow up to that WB statement!

the year end target is what i like!

Louis Cypher said...

what are the cycle gurus saying?
Does this fit with what cyclist is saying?
"Our main purpose is to defend $36 and detonate the derivative bomb that will send silver well over $80 by the end of the year. Perhaps even to $120 before all is said and done.

And just to make sure silver doesnt go below $36, we will be holding contracts for delivery throughout september and will hold these contracts as hostages in case The Morgue decides to get cute with the price.

I.e., if silver is under $40 then we will demand physical delivery and not take the cash premiums that is so generously offered. If silver is above $50, then of course we would be happy to sell these same contracts for a hefty profit (plus those hefty premiums as a cherry on top). It's your call, Blythe, but either way....

You're going home in a body bag, do da, do da...... "

GM Jenkins said...

"We have The Morgue on the run now.

So far in the first two days of Sept deliveries, there has been a total of 723 contracts served (173 yesterday and 550 for Friday). Yet there are still 2418 contracts that remain to be delivered. Of course a number of these contracts will not stand for delivery (taking the cash settlement instead), but if the last two days are any indications, few of these contracts will accept cash settlement now. So far, there has been less than 70 contracts lost to cash settlement. If these numbers hold up, about 2200 contracts will actually stand for deliveries in addition to the 723 contracts that have been sent down. Compare this number to the previous 2 delivery months of May and July (around 1600 contracts delivered for both months total) and you can see the problem that The Morgue has now.

On another note, some readers find the 'body bag' reference disturbing. This reference was from our previous colleagues (option pit traders) who casaully refer to other traders who "blew up", "got carried out", and "went home in a body bag" as a form of taunts for their bad trades. In this age of hyper-sensitivity (and with that whole McCrudden thing and the SEC), we feel it is bests to disavow this reference and set the record straight once and for all. The "body bag" reference is to the the high number of short contracts in the Silver pit and does not refer to the threat of anyone in general or in particular.

Be that as it may, from now on, we will end our communication with the following line

....... do da, do da.......

GM Jenkins said...

and some trading advice from the WB crew:

"The following reply to the question of what to do with the miners come from a few traders within our group. It is not the advice from The Leader or the group in general.

These traders believe that that best way to play the miners is to 'go for the kill'. For example, the SVM Dec11 strike 12 is going for 80 cents. The 52 week high on SVM is 16.32. If SVM returns to its 52 week high than these contracts should be worth at least $4.50. Similar option plays can be had for Paas currently $32+ with a 52 week high of 43, and similarly with CDE and other mining stocks. You should wait until the HUI index breaks 610 on strong volume and put on these trades.

The difficulty lies in the fact that even if silver breaks $50, these miners may not be at their 52 week highs. But worry not, once silver breaks $50, The Leader has something special to demonstrate to Blythe and the Morgue. Of that you can be sure. So the advice is to buy OTM options for December or later with a price target of at least 52 week highs on the miners."