Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15
Stock Traders Flock to Gold GLD ETF - 24th Jan 15
10 Reasons Why You Need an Offshore Bank Account - 24th Jan 15
Goldman Sachs Blankfein - Regulation is Like Background Noise - 24th Jan 15
Gold in Euros Surges As ECB To Print Trillion Euros and Greek Election This Sunday - 24th Jan 15
Gold Bear Market Rally or New Bull ? - 24th Jan 15
Euro-zone 'QE already Working' Says IMF Lagarde - 23rd Jan 15
ECB and EU LTRO and QE for Dummies: Or, Make These Trades - 23rd Jan 15
Debt and Deflation: Three Financial Forecasts - There's More Than Falling Prices - 23rd Jan 15
Market Should Not Doubt' Mario Draghi ECB QE - 23rd Jan 15
Francs, Bonds, Barrels, and Bail-Ins - 23rd Jan 15
Are Plunging Petrodollar Revenues Behind the Fed’s Projected Rate Hikes? - 22nd Jan 15
Stocks Bear Market Lessons from History - 22nd Jan 15
Russia's Plans for Arctic Supremacy - 22nd Jan 15
166 Trillion Reasons Why Bank Stocks Are So Cheap - 22nd Jan 15
Will Gold Price Break Out Once Again? - 22nd Jan 15
The Cult of Central Banking - 21st Jan 15
Five Stock Market Questions Wall Street Hopes You’ll Never Ask - 21st Jan 15
China's Yuan Enters the Currency "Big Leagues" to Take on the Dollar - 21st Jan 15
Investor implications of QE by the ECB - 21st Jan 15
Deflation Bonanza! And the Fool's Mission to Stop It - 21st Jan 15
Messin' With My Financial Brain - 21st Jan 15
Are Stock Market Buyouts Checking Out? - 20th Jan 15
Legal “Steroids” Are Making This Tech Stock a “Buy” - 20th Jan 15
Are Stock Market Storm Clouds Massing? - 20th Jan 15
The Swiss Release the Kraken! - 20th Jan 15
The European Union, Nationalism and the Crisis of Europe - 20th Jan 15
Swiss Say No to QE - 20th Jan 15
Gold Demand Explodes as Volatility and Fear Stalk Market - 20th Jan 15
The Truth About This Stock Market "Meltdown" Indicator - 20th Jan 15
Markets 2015 More Of The Same? - 20th Jan 15
Is Market Sentiment Shifting to Gold? - 20th Jan 15
U.S. Dollar’s Major Breakout and Gold’s Simultaneous Rally - 19th Jan 15
Silver Price Breaks Out on Swiss France Euro Decoupling - 19th Jan 15
Gold Bullish Inverse Head and Shoulders Pattern - 19th Jan 15
Bundesbank Announces Repatriation of 120 Tonnes of Gold from Paris and New York Federal Reserve - 19th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of US Markets 2015 Report

Precious Metals Short Squeeze Underway

Commodities / Gold and Silver 2010 Sep 20, 2010 - 11:40 AM GMT

By: Captain_Hook

Commodities

Best Financial Markets Analysis ArticleThe first thing I want you to do this week is to read this past article from the spring entitled ‘Smoke and Mirrors Markets to Sponsor Precious Metals Mania’, which will benefit new and exiting subscribers alike for several reasons. (Apologies to non-subscribers as this article cannot be opened to the public.)  First and foremost, and reflecting the title, it discusses market sentiment in detail – it’s importance and how sentiment is a primary driver in any market. Secondly, it discusses this with respect to silver as a focus, which makes for a good comparison with present circumstances. What’s more along these lines, it also discusses aspects of the bullish fundamentals that are now driving silver (i.e. seasonals, fractional reserves finally drying up, etc.) that are contributing to silver’s long awaited breakout higher, which is occurring as we speak in my opinion.


Why do I think silver is finally breaking out to the upside moving forward? Because of important developments not present back in the spring. First, in terms of the paper markets, not only does the likelihood of position limits on COMEX finally have JP Morgan and the banking cartel rethinking their situation; but also, sentiment has gone bearish on silver as measured by rising open interest put / call ratios on the primary silver ETF known as SLV, fostering a short squeeze higher just like this condition does for stocks; again, both aspects discussed in the above attached article. We would be amiss not mentioning how inter-market relationships play a role here too (i.e. money from a popping bond bubble looking for a new home will be drawn to precious metals), which is also discussed above, however we will not expand on this point today.

Instead we continue to focus on sentiment, as it’s appears to have been an important missing link in terms getting a long overdue move higher underway once again, where we would like to bring your attention to the logic loops used by speculators when placing bets, bets in the derivatives (primarily options) market. Where are we now in this respect? An increasing percentage (still low) of speculators think deflation is immanent, which is causing gold and silver to rise (because of a short squeeze), which in turn has the larger population seeing an inflation signal, which is keeping open interest put / call ratios on US stock indices generally low. Here, unlike previous instances that witnessed low and falling put / call ratios on precious metals and their related equities (think GDX and XAU), now we have the opposite (hence the higher prices due to squeezing); and, we also have the opposite in stock indices ratios as well, which is why they have had trouble catching a bid. So you see what goes around has come around for both silver and gold in the paper market pricing mechanisms, which is a large part of the reason they are rising.

And the second reason silver is breaking out in my opinion is a physical supply squeeze is also now finally underway, which is not discussed above, and is essentially new from this perspective then, however we always knew this was coming, we just didn’t know when. Here, I can tell you from my own experience in buying physical in Canada, where one would assume supplies to be plentiful until a genuine supply problem emerges, wait times, especially with larger quantities, are getting longer, which supports this thinking. Things are nowhere near as bad as in the States, with silver eagle sales suspended regularly (and are still unavailable today) amidst record demand, however this could happen in Canada too, which would be telling in my opinion.

What’s more, this would also be another example of what goes around comes around in that in perpetuating paper markets and the dollar ($) all these years at the expense of the silver market (because this aided in controlling the gold price), now, we will have a buoyant silver market pushing gold higher, which would hopefully see both finally return to not just some semblance of reasonable inflation adjusted pricing, but more, as the currencies they have been for thousands of years. Of course if Egon von Greyerz is correct, and gold (and silver) is entering a virtuous cycle, then this brand of thinking is far too conservative, with prospects for the metals potentially into the multi tens of thousands.

Where are we right now? With silver at $20 and looking to test more recent highs at $21; and gold just under nominal all time highs at $1260, we may be knocking at the door of entering such a virtuous cycle, however both of the metals are short-term overbought as can be seen on daily measures (gold and silver), so corrections could come at anytime. In bull markets like this however, you don’t want to make the mistake of looking at a daily chart in gauging potentials (or even weeklies sometimes [not with silver and gold now however]), where under present conditions, which are potentially explosive for the metals, prices can keep moving higher despite overbought conditions that would normally stop a move. This, is what manias are all about, where it imperative to watch the monthlies, with silver featured first below. (See Figure 1)

Figure 1

Moreover, in manias such as this you don’t attempt to trade lower degree swings, allowing the momentum to work in your favor. If you wish to look at such a strategy (short-term swing trading) then one must use a system (like put / call ratios, sentiment, technicals, etc.) or identify trade signatures, such as the one that appears dominant right now, with the cartel attempting to push prices down every night, only to see new highs daily as cash market / ETF trade overwhelms such efforts. Here then, a short-term top in silver would be apparent with a strong overnight performance possibly leading to a gap opening in daily COMEX / ETF trade. This is the signal I would be watching for to mark a short-term top in both silver and gold, which as suggested above, with the former taking the lead these days. (See Figure 2)

Figure 2


Further to this, and as you can see in both charts above, technically both gold and silver have further room to run, with the latter still playing catch-up from a technical (and fundamental) perspective. (i.e. gold is more over extended than silver.) With both gold and silver approaching overbought conditions on the monthlies what is the primary reason they would continue higher then? Answer, because the Fed (Bernanke) will likely need to start monetizing stocks and real estate, which could lead to asset hyperinflation. It’s either this or the US government will eventually be forced to devalue the $ Roosevelt style, meaning by declaration, making technicals moot with such a move. This is of course why it’s a very good idea to have healthy core holdings in physical gold and silver.

Aside from such a development however, if precious metals are to continue advancing on a more natural basis, the shares will need to participate too, meaning we should look at the health of the indexes as well. Here, with broad index health important to precious metals shares, it makes sense to look at the Philadelphia Gold And Silver Index (XAU) because it has a tighter correlation to the broad measures of stocks compared to the Amex Gold Bugs Index (HUI) or Amex Gold Miners Index (GDM). And in looking at the long-term weekly print from the Chart Room we see quite a constructive picture, with indicators well supported and positioned to move higher. The potentially exciting part of this chart comes in the observation a channel recapture is being attempted right now (as has been the case off and on for some time), this accompanied by an important time line turn right now, allowing for volatility to re-emerge with a bullish impulse higher. (See Figure 3)

Figure 3


Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. As you will find, our recently reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.

And if you are interested in finding out more about how our advisory service would have kept you on the right side of the equity and precious metals markets these past years, please take some time to review a publicly available and extensive archive located here, where you will find our track record speaks for itself.

Naturally if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.

Good investing all.

By Captain Hook

http://www.treasurechestsinfo.com/

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

Copyright © 2010 treasurechests.info Inc. All rights reserved.

Unless otherwise indicated, all materials on these pages are copyrighted by treasurechests.info Inc. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission.

Captain Hook Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014