Screwtape Files: January 2014

Sunday metals pre-game, 1/26/14

I'm still skeptical about the rally. Opened small long positions in gold and silver on account of the reversals on my benchmark 3-line break charts, which have been highly accurate in predicting when "legitimate" intermediate cycle reversals have occurred in gold and silver, respectively:

Very interestingly, the Dow/GDXJ ratio (above left) three-line break reversal disappeared intraday on Friday, when GDXJ was absolutely slammed at 10 am out of nowhere. However, GDXJ recovered enough to pull off the ratio reversal by a hair.

But gold stopped right at its 20-30 wk moving average "ribbon":

And with the 100-day MA (pink) just 1% away, there's some resistance to look forward to. Even if that's cleared, the more important 144-day (or 150-day) MA is moving sideways right below the psychologically important $1300 level. A break through there would be a much better buy signal, but it won't be easy...

Also, will silver be able to break out of the parabolic down cycle I've been tracking? Still waiting for that...

Note (1) this is a parabolic formation on a log chart (extra bearish, if you will), and (2) any three points determine the parabola, which now has been touched intra-week 12 times. . .

A quick follow-up to the GLD bar list, which had a large 600-bar addition last week, I wanted to shed some light on the inner mechanics. Inventory additions in GLD are noteworthy because the trend is currently inventory removal. This is a followup from this post when 6½ tonnes got added late last year.

The inventory addition on 17th January 2014 from the SPDR GLD trade spreadsheet finally showed up in the bars list data on 23rd January 2014 (delayed because of the US holiday). I was mildly surprised to see that all the bars added (i.e. 100%), had been seen before, i.e. they were dark bullion for a time before being 'added' back to the ledger. The average rate for dark bullion discovery is typically 30% of added gold so this is unusual. For most of the time, these bars have been sitting in the vault, from as far back as 2009, this is the breakdown by refiner:

Below is a method I am developing for GLD inventory visualization, sorry for the crudity - bear with me, I will explain it.

Fundamentals? We Don’t Need No Stinkin’ Fundamentals! (Part 1)

(Restarting the New Gold Supra-Theory Series)

Truth to tell it wasn’t Dean James’ persuasive arguments that finally convinced me to join the faculty at STFU. GM Jenkins sealed the deal when he kindly let me in on the secret behind the ape-leitmotif scam here i.e. the stuff you can get away with if you adopt a cutesimian persona.

Hence the baby orangutan disguise I adopted in my first post here at Screwtape Files. As you can see I have had my hands full recently with student orientation but it’s publish or perish in academia and a restart of the New Gold Supra-Theory series of papers is long overdue. The beacon of fundamental golden light has not shone forth during my absence from these pages.

I'm sure Uncle costata isn't the only screwtaper who was horrified by the heresies in this post by GM. By way of example (my emphasis):

I believe price charts have become more important than any fundamentals-based arguments (e.g. of the "1001 reasons the dollar is doomed" variety you see on Zero Hedge once a week). My goal being to make money in 2014, my resolution is to avoid letting the bone-crushing stupidity of the American population, the knee-weakening asininity of the mind-bogglingly corrupt politicians, and the eye-watering chutzpah the Wall Street scumbags influence my investment decisions (especially short- and intermediate- term decisions).

I'd very much like to believe that the positive price action the past few weeks augurs a cyclical shift and return to the good 'ol days of 2010-2011 (back when a financial apocalypse, and the immense human suffering that would certainly ensue, appeared to be right around the corner).

And certainly, the strong-ish bounce off the blue trend line below was a good (and in fact, necessary) development if things are to turn around for the gold and silver bulls. But if we look at the charts -- and as per my New Year's resolution, ignore all fundamentals-related news (or pseudo-fundamentals -related hype) about China's insatiable purchases or JPM lawsuits -- I cannot justify being long here, especially aggressively. The 30-week MA (or its rough equivalent, the 144-day MA) is still at $1300. And note that the red dotted line below hasn't even been cleared on a weekly close. No market goes straight down, so this seems to me just another brief rally before the continuing grind down.

And then there's the Canadian dollar chart from last week... It's broken the blue trend line on a weekly close! Not a good sign.

The all-important "yields-in-silver" chart could be rolling over, or could simply be returning to its trend line on its way to the green dotted wedge, which has marked the bottom in gold without fail.

Hello friends,

Lots of good comments in the post below -- I hope this short update doesn't derail the conversations. But I thought it would be a good idea to present an updated version of the weekly chart that should tell us rather soon what gold and silver will do for at least Q1 (and probably a lot longer if $1215 can't hold a weekly close).

How soon? Probably by months end, as the critical 30-week MA (purple) is quickly closing in on the fundamental long term trend line (see magnified version below main chart).