Finally, we have seen the obvious (what most people will now take note of) kickoff to a short-term correction in the precious metals. Depending on the fundamental picture, we can plan on taking advantage of a buying opportunity as we have been noting over last couple of weeks.
Gold got blown up in 2 days with respect to the short-term rally. Watch for gold to bottom before silver as we likely transition into a phase of gold leadership over silver. Key support is from the 1300 down to 1270.
As the silver CoT report data systematically, almost robotically degraded into the September 2012 top (despite the seemingly bullish coming of QE3) NFTRH used to ask week after week “Who are those guys?” doing its best Butch Cassidy while evaluating the gathering short interest.
Below is the CoT graph from NFTRH 203 dated September 9, 2012. Week after week ‘those guys’ were ganging up on silver and we all know what soon happened; a harsh bear market down leg for the precious metals.
With silver heading to a break down or break out decision in the coming weeks and with its price down hard today, those bullish on silver and looking for buying opportunity could be buying today. It is hard to buy silver now, and that is probably the point.
There is a problem with biiwii.com’s server this morning and I was unable to do the Wednesday morning Key ETF update without constant interruptions. In its place this week we’ll simply go with a general update by email.
HUI has declined to 215 and made a marginal lower low from the start of the bear flag in the 216’s. We had been anticipating 210 as the critical support to a bottoming scenario. So, given the proclivity of this sector to test limits, let’s keep that alive.
The 10 vs. 2 year yield spread dropped, which was an in-day negative not to be given undue weight based on one day, but to be respected none the less. Interestingly, the sector went nowhere (GDX) to down (GDXJ, gold, silver) yesterday as the spread popped. Today spread down, sector up.
We should watch volumes today to see if there is enough conviction to get GDX, GDXJ and high profile individual miners above the moving average clusters they recently fell below. I’ll try to get a review of that after the market closes, assuming today stays positive.
Gold continues to look like it wants to test support at around 1270. A rise above 1300 could put that prospect in the rear view mirror, however.
It is interesting how sometimes a chart will do what it thinks it is supposed to do, even in the face of other information that says it should do something else. Silver’s chart, as we have been noting, was supposed to test support and that is what it has been doing while the rest of the precious metals complex rises.
Gold is Monetary Value
We preface the post with a statement that has not changed since I began public writing nearly 10 years ago: Gold is not about price; gold is about value. This point was hammered home to me 11 years ago by a person who had much influence upon my viewpoint toward the financial system and its various diseased components at a time when I was ready to listen and understand.
So whether we are talking about 2013’s epic price crash or a new bull trend in 2014, the simple fact is that physical gold itself is a store of monetary value. That applied last year as the value was marked down by greed and confidence and it will apply this year as it is marked up in the face of a likely unwinding of those things. Humans, what funny and hyper kinetic animals.
Precious Metals Speculation
Ah, but this post is about the fun part, the speculative part where we humans can make gains from gaming the simple store of value and its wild little brother, silver. As asset market speculators we care about prices, right? How about the share prices of the completely blown to bits miners that dig the stuff out of the ground?
What Has Been
A solid 2.5 years of risk management (to varying degrees) has been required of precious metals investors. It was most intensely required after the announcement of QE3, when the net commercial short position in silver began a relentless march toward a very bearish alignment in late 2012 and then the HUI Gold Bugs index lost an important support level at around 460. Here is the chart of silver with a heavy commercial net short position from NFTRH 215, dated 12.2.12:
A view of the metals by daily chart. SLV is above the 50 day averages. Next objective would be to break the trend line. There is some volume creeping in,…