What's next? Update ...

So, we did indeed hit $1800. Then, we dropped sharply, such that this chart strongly suggests we have several months of correction and consolidation ahead (see three black circles).

There are other good reasons to expect a sharp sell-off here as well. For one thing, the open interest fell drastically yesterday, and rose sharply today, indicating that the weak-handed shorts were helicoptered to the ER and replaced by the strong-handed bullion banks.

Another reason to expect a sell-off here is that silver couldn't make it past the blue trend line (see here for background):

It found support at $37 (see upper horizontal line), which may continue to be support, but if broken, a drop back to $33-$35 looks likely. (Which, if Wynter Benton is to be believed, will trigger the Apocalypse, so be sure to have your canned soup fortifications in place.)

All this notwithstanding, there are some signs that we haven't seen the end of this run. First, the obvious thing usually doesn't happen, and a decline here (especially to $1680) seems so damn obvious. Then, I suspect that this recent run-up scared a lot of erstwhile gold skeptics off the fence (Yes, Virginia, there are venal asshats behind the curtain!), but they didn't want to get chumped by entering the market at a historic top. So, a lot of people waiting to convert some of their bennybucks to real money, such that if we do fall below $1700, there will probably be strong buying at every step of the slow staircase pattern that took us to $1700.

Then, gold in other currencies still has room to climb. Check out gold in euros, for example, which fell today too:

Or gold in swiss francs, which is hardly overbought (note the RSI still at 63 and the 5% 20-day EMA envelopes not yet broken). Even more bullish, it looks to have just busted out of a pennant formation.

Therefore, perhaps a good hedge might be betting on dollar strength (e.g. the dollar bull ETF, UUP) [Note, this is not investment advice: I'm a licensed punter]. The following two ratio charts that I've been looking at seem poised to test the blue trend lines again, and a rising dollar could in theory do most of the legwork.


Louis Cypher said...

In other news S&P just raised gold and Silver to AAA+.
The Swiss are still pissed off with all the Euro trash buying their currency. At some point they will do something about it other than spreading rumors and it will be spectacular.

Louis Cypher said...

All joking aside I am tempted to convert some Benny bucks to Euros and Chinese paper on the next Dollar pop. I think (adjust antennae here) Europe is readying itself for the next logical step and that is a true United States of Europe by spreading the debt around and giving the ECB complete autonomy just like the Fed. (See Armstrong's article on Europe see also Olie Rehn's recent comments)
The stage is being set politically for it.

Yukon Cornelius said...

*puts on tinfoil hat*

Europe becoming the 'United States of Europe' as LC called it has been pushed by conspiratorialists forever as the true beginning first step of the New World Order. Second is the USA becoming the United States of Americanadamexico or whatever the hell it's supposedly going to be called.

*takes off tinfoil hat*

I think we are definitely going to see a new currency and we have to have a transition to it. A lot of crazy shit is going to happen between now and then. For folks out there that worry about this stuff, just ask yourself what you can do to put yourself at ease with your finances, your job, pretty much your whole life and then do those things.

The world will go to hell in a handbasket or to Utopia whether or not we kill ourselves stressing out over it. Best to due whatever helps your calm and just try and enjoy the ride.

Louis Cypher said...

Takeing the notion that Europe is heading towards a real fiscal union then it is going to happen sooner rather than later.
The ECB has shown itself to be willing to head in this direction by purchasing Italian bonds. They have bought irish and greek bonds but that was chump change compared to the 200 billion on italy alone. Can it be sold to the Germans or forced on them is pretty much the only question.