Gold and Silver Rally Completed?
Gold and silver embarked on a major investment-led rally on January 23, 2009 that was presaged by several days of elevated readings in the gold and silver basis, particularly the ETF basis of the big gold and silver ETFs, GLD and SLV. That rally officially ended today as gold and silver traded down to their pre-January 23 levels (silver around $12 and gold around $860). Actually, silver had already traded down to this level a couple of weeks back but gold did not play along and therefore the rally was still technically alive. Be that as it may, what matters to traders and near-term gold and silver buyers is what’s next. I’ll try to provide a smattering of thoughts.
First and foremost, we need to watch the holdings of the GLD and SLV ETFs. Both remain at record levels despite the recent price weakness and in fact SLV added almost 4 million ounces to its holdings on Friday, surpassing 270 million ounces for the first time. If the holdings remain near current record levels instead of receding substantially, this will be a very positive sign for gold and silver prices (in terms of a correction, “positive” would mean a short and shallow decline). As an advance tool for predicting whether or not the ETF metal holdings will be stable, declining or even increasing, I expect the ETF basis to be especially insightful in the days and weeks ahead. You can see my detailed tracking of the ETF basis for subscribers of the Metal Augmentor service. What I will say here, however, is that the ETF basis for both SLV and GLD were actually price-positive today after slipping into neutral (and even negative for GLD) late last week.
There are not many consideration that are relevant currently from a fundamental perspective — the 800 pound gorilla in the room remains investment demand. As long as it does not turn into investment supply, we should expect the correction to be over fairly quickly. This doesn’t mean we will immediately see prices scream higher again as there are some very good reasons why a period of consolidation would do the monetary metals a lot of good. For example, we could see some Indian and other traditional sources of demand come back into the market if prices stabilize. This is because traditional buyers have largely been absent from the market due to record prices in their local currencies. Thus there is a growing pent-up demand.
From a technical perspective, $12 is a fairly important level for silver and ideally we would not want to see it clearly breached. The trading action so far today is interesting inasmuch as silver appears to be tiptoeing the line around the $12.10 level, which probably means that there is quite a bit of bargain shopping taking place. The question is, how much money are the bargain shoppers willing to spend especially if gold is intent on testing the layers of support that lie below $860 down to the $800 level? We’ll probably get the answer soon enough.
Another thing to consider from a technical perspective is that both gold and silver have declined in a relatively orderly manner (other than the Fed-related action around the middle of March). This has more the feel of a breakout test (in terms of the January 23 rally) than a severe technical correction that wipes out accumulated euphoria. If so, we could actually be near a very important bottom. In any case, $12 in silver is a pretty good buy level for long-term core positions. Prices could certainly get even better during the next few weeks but unless you are that unique individual who can always pick exact tops and bottoms the idea of nibbling on silver at $12 vs. almost $15 just a couple of weeks ago should appeal to you.
From a trading perspective, the clear break around the $12 level offers a fairly safe speculative buy entry point if a tight stop discipline is maintained. I don’t believe there is reason to risk substantially lower prices. I would simply stand aside while silver is below $12 and try again once it is above $12 again. Downside risk is down to around $10.
The story is much the same for gold but I still can’t shake the notion that the buttery metal is more vulnerable to a severe decline despite the historical record of silver always falling further and faster. Perhaps the magic level for gold is the psychological $850 mark. If so, much of what I have said about silver at $12 would apply to gold at $850.
Good new BLOG FORUM TOM….and I agree with your latest POST. As I said before…..who needs GOLD and SILVER when we can PRINT MONEY UP and MAKE TOXIC ASSETS WORTH GOLD.
I see SILVER going to $3-4 AN OUNCE….and until then….I am not buying any SILVER. We will probably see GOLD somewhere at the $300 range again. All this TALK of GOLD going to $2000 and SILVER going to $50 is HOGWASH when we can just use TOILET PAPER AS AN EXTINGUSIHER OF DEBT.
FUTHERMORE….LOLOLOL…why even INVEST IN GOLD or SILVER when you can OWN A BANK and LOOT the PUBLIC DRY??? HAHAHAHAHhhahhahah
Jeeeeesh….what a DISGUSTING SOCIETY we have today don’t ya think??
Wow, what a weird daily chart! No undershoot of 12 with sellers and buyers in an exciting tug-of-war. Almost like a slingshot pouch being pulled back another notch.
http://silverstockreport.com/2009/OTC-silver-fraud.html Well more silver fraud and manipulation, in the tune of 190 billion, and the hits just keep on a ccoming. People wonder why silver keeps tanking, MANIPULATION.
Silver stocks at Comex fell around 6 million ounces in the past week.
Seems to coincide with SLV adding to its hoard. Perhaps SLV actually
has the silver they claim?
If SLV actually has its claimed ounces, then it is SLV, not Comex,
which will be the “determinator” of silver prices before too long.
The more they add, the greater their power over the market.
Is there any public data on the amount of SLV shares owned by each “entity”(for lack of a better word)? Or how about the size in shares of individual daily transactions? This could potentially be very useful info.
Silver, TOM PROVED there is no MANIPULATION in the METALS MARKETS. Jim Willie States that JP MORGAN has sold over $2.2 TRILLION in NAKED SHORT TREASURIES….I gather he is just trying to sell newsletters. LIL TINY TIM GEITHNER is giving the BANKS a SILVER SPOON, while SHOVING a CROWBAR up the TAXPAYERS AZZ.
So why should people think there is any MANIPULATION GOING ON. Anyone who believes in MANIPULATION of the METALS MARKETS, NAKED SHORT SELLING, 9/11 INSIDE JOB, OR etc, is a CONSPIRACY WACKO…right?
Everything is JUST FINE. We have TOTAL HONESTY and INTEGRITY in our FINANCIAL MARKETS. Remember when HANK PAULSON got on his KNEES in front of CONGRESS last year and said that he needed the MONEY to keep the SYSTEM FROM COLLAPSING? Do you remember he also said, he wouldn’t use the BAZOOKA unless it was really necessary?? The BAZOOKA was used and it was only $750 BILLION FER PETE SAKES. GEITHTNER and that clown BENJAMIN BUCKS BERNANKE are throwing $TRILLIONS of DOLLARS…they are in fact using the NUCLEAR OPTION.
What the HELL HAPPENED TO IQ’s recently?? When are people going to wake up and start asking for the GOVT to REINSTITUTE the GUILLOTINE??
It really gets HILARIOUS to watch GROWN MEN LIE through their TEETH on CNBC like that TWIT, KUDLOW talk about MUSTARD SEEDS and fill the show with BULLISH FINANCIAL ANAL-LISTS who are just as BRAIN DEAD as the same MORONS last year who were saying the ECONOMY was SOUND. I have to sit and watch the SAME SHOW ALL OVER AGAIN THIS YEAR. These MORONS keep pushing the BULLISH TREND saying EVERYTHING IS OKAY. What’s going to happen NEXT YEAR when the US BONDS START TO COLLAPSE as the DOLLAR DEVALUES and BIG BANKS GO UNDER.
SHOULD WE BRING BACK BEN STEIN ON CNBC and TELL US THAT FINANCIALS ARE SOUND AGAIN??? Will that DO THE TRICK??
DOES ANYONE FOLLOW WHERE I AM GOING WITH ALL THIS???
@forwill
It’s been a long time since I say silver or gold “flatline” most of the day like this especially just above important psychological support. It’s very possible this is a sign of generic, relatively weak selling instead of the normally robust liquidation that would normally take place. On the other hand, penetration of the $12 and $850 levels could accelerate the selling activity. You’d think if the gold and silver manipulators had any real power they would be all over this like white on rice.
@JohnST
The COMEX and SLV have nothing to do with each other and the COMEX warehouse stocks are different from the ETF holdings. While there is always a chance that some COMEX warehoused bars will end up in the ETF at some point (and vice versa), the logistics just don’t make this very likely. For one the cost of storage and insurance in the U.S. is higher than it is for London warehouses and it is not cheap to ship silver across the ocean. Thus the trustee and custodian stand to lose money if they accept silver stored in the U.S. and there is absolutely no reason why they should want to lose money. Indeed, the fact that the SLV has traded at a slight premium for 2 months is a strong indication that silver has NOT been obtained from locations other than London. In other words, the premium likely reflects a local tightening of available silver in London due to incessant demand from SLV. If at some point this gets so tight that the only reasonable alternative is to accept silver in COMEX warehouses, that will be really big news.
@forwill
There is no data like that, only the total shares and holdings and daily trading volume.
@Silver
Where is the fraud in 180 billion in silver derivatives worldwide??? How much of this is options, collars, caps and swaps instead of outright short and long positions? Silver production and recycling is an annual 10 billion dollar business and there is a multiple of that in silver held in various forms. Compare that to interest rate products which are roughly 50 trillion and have about 500 trillion in derivatives, roughly the same proportion. If all derivatives are fraud, then silver derivatives are fraud but there is no point singling out silver.
@SRSrocco
“9/11 inside job” is super-wacko conspiracy stuff, gold and silver price suppression is just plain wacko conspiracy in comparison. The problem with this line of reasoning is that things will probably look better at some point until they start to look bad again and in the meantime the more wacky the warnings about the sky if falling the more ridiculous the (golden) chicken littles will look. That is, right up to the moment when the sky does actually fall.
TOM….all I was saying was ALL CONSPRIACY THEORIST ARE WACKOS. THE OFFICIAL 9/11 CONSPIRACY THEORY is JUST as WACKO as the 9/11 FOR TRUTH CONPIRACY THEORY. GET my DRIFT.
JUST TAP you FEET TOGETHER…like DOROTHY on the WIZARD OF OZ and REPEAT AFTER ME….”THE FUNDAMENTALS ARE SOUND and the FINANCIAL and GOVT SYSTEM is FULL of INTEGRITY and HONESTY”
If you do that….than everything should be just FINE…
Could SLV possible become a closed-end fund when they no longer can acquire silver bullion in london?
if the rally in silver culminated in a brief peak above its ever declining 200 dma before retreating, are we still in a bull market?
I am not a trusting soul. I believe if some people have an advantage over others, particularly in money matters, they will somehow justify using that advantage to benefit themselves. I have always wondered if the “cued-up” sell/buy order data at brokerage firms is shared with anyone. A few times it seemed like somebody knew exactly where my limit orders were placed(and probably hundreds of others near mine) and I was burned on a trade by a few pennies.
A little paranoia is a good thing when it comes to ones survival. So much of the bullshit that has happened and is going on in government/politics is so in-your-face crazy that I’m willing to consider listening to all opinions.
I’d just say, that if you’re convinced your being played for a fool and you are powerless to stop the players, its time to get out of that situation.
@SRSrocco
I liked the old SRS, the one with less sarcasm and more fatalism.
No
Yes
TOM….I like the OLD SRSrocco better myself. But as you can see today….I am experiencing a little FRUSTRATION. It comes out as SARCASM….indeed. So you are correct in your JUDGEMENT.
This weekend I watched several VIDEOS that have really changed my opinion on things. Seing the INTERVIEW with WILLIAM BLACK on the BANKING SYSTEM with BILL MOYERS and today another one on the TECH TICKER where BLACK states the “GEITHNER BANK STRESS TEST” is a big SHAM just adds INSULT to INJURY.
Anyhow….I don’t even want to mention the other videos….but I will say this…..GOD BLESS the CHEESEMAKERS.
@SRSrocco
Rocco, you’re only 40% in metal, right? Time to double up, my Man!
I’m 97% in and I just bought a ‘98 Ford Escort for 3 grand plus I’m a renter, so no doubling up for me. This sure looks and feels like the bottom. Asia is buying with both hands. Nothing but blue sky above us now. That wasn’t so bad, was it?