“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput






Thursday, December 20, 2012

Silver Chart and Notes

For you Silver guys out there, by request...

With all the recent selling occuring in the silver market, the chart informs us that metal still remains mired within a very broad trading range that has contained price for the better part of 15 months now.

The top of range is from $35 - $35.50 while the bottom of the range is between $27.0 - $26.50. Within that range silver had put in what appeared to be the beginning of an attempt to start a trend back in October with that strong upside reversal week but it then seemed to run out of steam as it approached $35 and now is sinking lower once again.



There is a bit of psychological round number support at $30 although that is not really all that much in the way of actual technical support. Very strong support lies down near $28 and extends all the way to $26.50. This region has proved to be rock solid in terms of buying support for that same 15 month period mentioned above.

I am of the opinion that for silver to take out this significant support level, an enormous shift  in sentiment would have to occur in regards to the overall global economy. In other words, in spite of the easy money policies being followed by the FEd, the ECB, the BOE, the BOJ and the stimulus measures of China, sentiment would have to shift in concluding that none of it is working and the global economy is heading for a sharp contraction in spite of the massive amount of liquidity being injected and the negative ( in real terms ) interest rate environment that now exists across many of the major industrialized nations.

I am also of the opinion that one would also need to see copper prices collapse sharply for silver to violate this downside support level. If that were to happen, that too would tell us the market now believes that all such stimulus measures by the Central Banks is fruitless and doomed to fail.

While no one can predict the future, especially with the entire global economy in a place that none of us have ever witnessed in our lifetime in regards to the sheer magnitude of the debt overhanging it, I suspect that these same Central Banks would waste no time in dusting off another version of the next round of QE were sentiment to deteriorate that badly. Let's face it - that is all they got!

For now it appears that the US economy and the economies around the globe are stabilizing. That does not mean that they are healthy; it merely means that central bank actions have stop the bleeding of the patient and got him stable. It is quite another thing for the patient to leap off of the table and start dancing. I do not expect that to occur at all especially without any serious structural changes being made in most of the Western industrialized nations.

Heading into the end of the year the thinning trading conditions are going to allow for some exaggerated moves due to liquidity issues. Keep that in mind if we see any sharp short covering rallies or even rallies caused by some new buying. I am looking out more to the start of the New Year to get a better sense of what to expect but as I wrote in an earlier piece this week, it would not surprise me one iota to see another YEN CARRY trade develop this coming year with commodities benefitting from another influx of hot money chasing yield in this pitifully, obscenely low interest rate environment.


9 comments:

  1. This is what some traders don't get about markets - they seem to think gold and silver will just start magically rallying because of some wave or cycle count but it really needs a sentiment shift or some sort of catalyst as you point out to get going. Also I never noticed on the chart till recently how silver was trapped in range. The other cycle analyst person I follow just doesn't seem to understand this but it is clear.

    Do you think the shorts will be out in force here?

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    1. Sara Lynn - in my view, cycles and waves are utterly useless as trading tools. the only guys I know who ever made money using them were those writing newsletters selling them to some poor unsuspecting dupe who was awed over all the estoric projections and other subjective musings associated with them.
      About the shorts - in gold - it seems as if the markt ran out of willing sellers today below $1640. Whether what will continue tomorrow is anyone's guess. Physical market demand will either surface and bottom both gold and silver or the marekts will see more liquidation from funds before the year end. We just have to wait and see what the case is from the price action.

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  2. Thanks for the great chart and commentary. You the man!

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    1. TheGilliom - you are welcome.
      Merry Christmas!

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  3. Hi Dan,

    Thanks again for the helpful commentary. Have you noticed the $HUI/gold ratio over the last few weeks? The miners have been awful, of course, but over the past few days their selloffs have been somewhat muted.

    They broke down somewhat today, but definitely closed way off of lows, with NEM and a few others positive on the day. Wonder if this is a false breakdown?

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  4. Dan

    Thanks for your commentary and efforts. I would like to ask a question. It seems something has changed and the economy in America has perhaps turned the corner and begun to escape the economic collapse that seemed so certain. Could it be that all the new found oil and natural gas sources in America are stimulating the economy and at the same time taming inflation? Peak oil seemed to be a precursor of the economic collapse, but now seems to have been put off for a time. I sense something has changed here and the precious metals bull market may have been hijacked or at least tamed a lot.

    Terry

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  5. merry christmas Dan!

    it feels like perceived deflation from the farcical cliff, which if allowed, would be highly deflationary.

    but in the best sausage-making tradition, it will not be allowed to happen, and at some point probably even AFTER the last minute, a deal will be done.

    DOW touches old '07 high in march, before beginning final secbear capitulation on west+japan sovereign debt/credit/entitlement bubble pop extending to 2016.

    gold approaches new high in march, also.

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  6. Dan,

    I am not sure exactly when I began reading your daily blog. You are by far one of the top two must reads every day for me. I wanted to take the time to wish you and all of your extended family a Merry Christmas. Even though it is/was in Gods plan, it is obvious your parents instilled values in you and you deliver jewel(s) of wisdom to the world.(You are a character) You have been a gift to read. Unmatched charting skills, experience, knowlege, witty, compassionate, and thoughtful brother in arms in libertarian thought. Cheers Dan. Thanks for all you do. May god continue to shine his light through you. May America return to our roots and previous greatness before we die.

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    1. White Wolf;

      Thanks for such effusive praise. May you have a wonderful and blessed Christmas season.

      Trader Dan

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