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Trading Lessons

Where is the Gold and Silver Rally? What is Missing?

Commodities / Gold and Silver 2013 Mar 17, 2013 - 10:36 AM GMT

By: Michael_Noonan

Commodities

So many headlines are saying "$5,000 Gold, or $10,000 Gold; Silver, The Investment of the Decade," etc, etc, etc. Will that happen? A history of failed fiat currencies says yes. When will it happen? That is the question few articles address because they simply have no clue, beyond their sensationalized headlines.

Who can best answer that question? It is not Who, but What, and that comes from the market itself, ever the most reliable source. The answers may not always satisfy, but the market is never wrong. What can be said with certainty is that before gold and silver, [PMs, Precious Metals], can go up, they first have to stop going down.


Remember, all the dire headlines about failed currencies and countries are well-known by controlling market forces, as are all of the purported PM shortages; the lack of available physical metal to fulfill futures/ETF contact obligations; China, India, and Russia being huge buyers; Western countries over-hypothecating gold holdings; empty central bank vaults; tungsten-filled bars being delivered, you name it. It has all been stated, restated, then stated again, yet the current price of gold and silver do not reflect these "realities."

Why not?

What is missing is consideration given to those in power and their ability to hold onto that power, at all costs. The outright lies being fed to the world's public, at least in Europe and the United States, continue to dominate headlines by the bought-and-paid-for television and print media. Where is the outrage? What little there is comes from the relatively small community of "fringe" bloggers, [the best truth-tellers], and those who have been consistently buying physical gold and silver, but they are no match for the powerful forces that will destroy whatever gets in their way, be it a country drowning in debt, salvaging it with yet more debt, or the debasing of one's own fiat currency, to keep the lie alive.

Right now, the lies are winning. They have to, in order for central bankers to keep power over everyone and everything else.

Until you start seeing currencies collapse, the Euro, the Federal Reserve Note, [aka known as the "dollar."], $5,000 or $10,000 gold and $200 or more silver are not in the picture, and the charts are telling you as much. Yes, price is being manipulated by four primary large banks each and every day, and some say the exchange prices do not reflect the realities of the market. This is not true. The reality is, the manipulators are still in charge, and for as long as they are, the price of gold and silver will remain where they are. Were it otherwise, you would see the price of gold and silver considerably higher.

For now, the market is saying the suppression of the price of gold and silver is alive and well. The operative words are: "For now." Until you start seeing price move higher, the market is sending the message that PMs are locked into a protracted trading range, [TR].

You be the judge. Do any of these charts even hint of a price panic to the upside? Forget a price panic. Do they look like they are about to rally strongly, or at all? Sentiment and bias aside, the market is telling a story that differs from the PM community's beliefs and expectations, at least for now, and that is reality.

Trading ranges last until they stop, and this one has not yet stopped. One thing no headline mentions is the possibility that the price of gold and silver can break out of the TR to the downside! The market is at a critical juncture, and it will provide us with some valuable information based on how price develops, starting next week.

To the charts, starting with weekly gold:

The lower channel line acts as an oversold indicator. Price is now in its fourth week of being oversold. Remember, oversold is a relative term, and it can lead to being even more oversold. When you view gold's performance last week, you see a small range rally. This is the market's message that demand is not very strong. Price closed near the upper end of the bar, but compare that rally bar with the larger down bars two, three, and four week's earlier. Ease of movement remains to the downside, and the burden of proof for change is with the buyers. So far, they are not meeting that burden, or so it seems.

What may be the most important piece of information on the chart is the fact that the swing lows of the past few weeks are higher than those from last May. If gold is to rally from here, next week should see more upside, or at least no further downside. From the February 2012 swing high, near 1800, price declined and then went sideways for 26 weeks, half a year, before breaking out to the upside. The current decline is in its 23rd week.

The mentioned higher swing low is a positive sign. The two wide range bars down, 4th and 5th from the far right, had no follow-through lower. It takes time and effort to turn downside momentum. Demand may not have been strong, last week, but the higher close also tells us that supply, [sellers], was weaker at an area where sellers should be in control.

The current facts from the market clearly shows price is moving down. Each level was preceded by a rally that failed to reach the high of the small TR, just prior to moving to the next lower TR. Are we seeing another failed rally that will lead to yet another lower level? For now, the odds say yes.

We do see some indications that current levels can hold. As price reached the lows in late February, volume was much greater than it was at the beginning of March, as price held. If we are to see gold rally, some evidence has to begin next week. The possibility of a failed swing high is apparent, but it has yet to be confirmed. While the odds for a rally may seem small, if the current lows of the TR and channel are to hold, the odds are greater than they appear, but they also have to be confirmed by a rally, and soon.

We did make two attempts to get long gold, twice, last week, but rallies are not holding, and breaks are sharper and faster. While the trades were profitable, the activity is not that of market strength. Buy the physical, but wait on the futures.

Silver still shows a more promising outlook if a rally is going to get underway from current levels. The clustering of closes can be a resting area, prior to resuming the trend lower, or it can be a turning indicator that shows the trend down has stopped and buyers are about to take the upper hand.

Sellers are supposed to be in control as they push price lower, but it appears they have stalled at an important potential support area, as we have described in previous articles.

There are beliefs and biases, and then there are observable facts. The expectations for biases and beliefs point higher. The observable facts are pointing lower. You can see how the rally efforts since the mid-February lows have been relatively weak, not even able to retrace back to 50% of the range of the last decline. This is an established fact. Facts rule over biases and beliefs.

We end on a positive note, "Anything Can Happen!" For all the negative appearances, the current levels are where there has been proven support within the larger TR, and the selling volume of the last three trading days is much less than the volume when a low was made in late February. The market is telling us there is less selling pressure, and it may still be poised for a rally.

The premiums for buying physical gold and silver are starting to increase, and that is a very positive sign. The reasons for buying and holding physical PMs remain as pressing as ever, and the window for doing so is getting smaller. Do not waste the opportunity the market is offering to add to your holdings, and for those who have been on the sidelines, start taking action. Get yourself to a coin dealer and buy what you can without concern for price or premium.

The "dollar" has lost at least 20% of its "value" over the past several years. If ever a trend were true, it has been the constant decline in purchasing power of paper fiat since the Federal Reserve took control of this country's currency. That trend is about to accelerate even more, eventually reaching the fiat's true value: zero.

The Fed-induced stock market rallies are at all-time highs. The rally in silver and gold, over the same time span since 2007 are 50% higher than stocks. This is a fact that should have everyone buying more gold and silver. Markets never lie. Trust them.

By Michael Noonan

http://edgetraderplus.com

Michael Noonan, mn@edgetraderplus.com, is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.

© 2013 Copyright Michael Noonan - 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.

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