Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Worse than Watergate - Release the Memo - Investigate Uranium One - 23rd Jan 18
CAT Stock Bouncing after JPM Upgrade How High and How Long Can This CAT Jump? - 23rd Jan 18
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

What Is Wrong With Gold? A Cyclical Overview

Commodities / Gold and Silver 2010 Dec 22, 2010 - 10:14 AM GMT

By: Bob_Clark

Commodities Best Financial Markets Analysis ArticleWhy are metals stocks falling? When at the end of the year, the mining companies will or should be reporting solid earnings? Maybe even blow out earnings.  Is it a sign that the price of gold and silver are about to fall? Is it a chance to get into the metals and metals stocks cheap?


The wall of worry is steep
There is no question that the metals are over loved right now. The bullish consensus for the metals is in the 98% area but it has been there for a long time.  China is getting to the point that they have to start reining in some of their excesses.  They can't keep building ghost cities in the middle of nowhere.  High long term interest rates are sure to start to damage any recovery in the US housing market.  Spain is on the radar now and talk is that the Euro will not be able to stand too much more stretching, before it rips in two. 

There are a great number of fundamental reasons why the metals may be sagging.
 
Could it be the Fat Boys?
Then again, it could be as simple as the Fat Boys lining their pockets. 
When the public is hungry to buy call options, somebody has to fill that need.  The FBs are usually happy to take the other side of the hedge funds and the public. They have and are now loaded short call options and they don't like to lose money.
 
A quick look at the put/call ratio shows that there were a huge number of call options sold, going into the expiry that just occurred on Friday. It also shows that there is still an imbalance of calls over puts, that has yet to be resolved. 

The Fat Boys sell naked calls and the public buys them.  When they push the price down on the underlying metals, the calls written against the silver and gold ETFs (gld and slv) lose value as well.  So do the calls written against the miners (gold stocks) that actually dig the gold and silver out of the ground. Time runs out and the calls either expire worthless, or the FBs can buy them back much cheaper than they sold them.
 
(The chart below is for all options related to the S&P 500, but I would imagine, that with the huge run we have seen in the metals.  There were a ton of calls held on various precious metals trading vehicles, as traders bet on the bull run in the metals continuing.  If anything the metals put/call ratio was probably even more biased to the bull side.)
 
 
Not so fast
With huge profits to be reported by gold miners and world wide chaos in the currency markets.  It seems like any sell down in the gold stocks and their ETFs is a buying opportunity.
There is one fly in the ointment however. Actually two flies.
 
The first can be seen on the chart above.  There are still a lot of calls being held.  We are at levels that are normally seen at the top of market rallies, not bottoms.  I think we can assume that there are still many calls being held on the various precious metals trading vehicles and their derivatives.

When you combine that, with the cyclical pattern that we see in the metals (lower chart). We may have to do some more consolidating in the new year,  before the bull can run again.
 

Push me, pull me
I have drawn the 3 month cycle (orange arc)  and the 6 month cycle (blue arc), on a one year chart of GLD, which is a gold ETF.  As you can see, both cycles are due to bottom in January.  They should exert a downward pull (red arrow) as they will both be going hard down when we bring in the new year.  That most likely explains why we are trendless now. 

There is one cycle that should give us some lift over the next couple of weeks, it is a 1 month cycle and is represented by the blue dots.

On the bull side, we have to remember that the bigger one year cycle, is still up and that once we make the 6 month (half year cycle) low, we should start the next moon launch.
 
Fuzzy bottoms
There is one other thing.  Notice that the last time we made a 6 month low. (Which was also the 1 year low.)  It was a little fuzzy, time wise.  The market actually bottomed early and the same thing can happen here.  The low we are making now or will make shortly, can turn out to be something more than a one month cycle low.  That is the trouble with cycles, they are just one tool in a good traders belt.
 
I am looking for another quick swing toward the highs, that may reach above 1400.  Then I expect a swipe down toward the October lows (128ish). That is where I will be backing up the truck. I also have a strategy to make sure that I don't get left behind, if the markets start the new up leg early.
 
Conventional technical analysis using indicators, doesn't work. If it did, making money trading would be easy. Instead the Fat Boys prey on traders that use indicators.

I offer one on one, learn to trade courses. There is also a powerful video set.  Both will get you on the right track in the new year. It is the same track the Fat Boys are on.  They control the markets and if you are not with them, then you are a victim.
 
Thank you for your support throughout 2010, it is deeply appreciated.

Wishing you Happy Holidays and a healthy and prosperous New Year.  

    Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com  his email is linesbot@gmail.com.

    © 2010 Copyright Bob Clark - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 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

6 Critical Money Making Rules