Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Debt-Driven Consumer Economy Breaking Down - 23rd Oct 17
Next Wall Street Stock Market Crash Looms? Lessons On Anniversary Of 1987 Crash - 23rd Oct 17
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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

Catching a Falling Financial Knife