Gold, silver, and the market.... A few warnings on the charts...
Using GDX, SIL and QQQ weekly charts as proxies for gold, silver and "the market'...
The last time gold silver and the QQQ had similar charts with similar correlation patterns as they do now, was in April to June of 2019. In that instance, gold did what it has done the last two weeks and sustained that sideways movement for another two weeks with tiny candles... then began a sustained rise. But, in that prior instance, gold's bollies were upward sloping into a pinch with gold nearing the bottom of an upward rising bolly in a pinch. Today, the bollies point down... there is no pinch... gold simply tracking down along a widened down sloping bolly, having just dropped down from the centerline to track the lower limit lower. Back then, the ADX indicator line sloped down as gold bottomed, and gold traded higher with the ADX indicator line as it turned up. This time... the ADX turned up the second week in February and gold has not traded higher, but lower. ADX -DI fell as ADX +DI rose back then... indicating the reversal correctly. Now as the ADX indicator moves higher the -DI and +DI continue lower... in parallel with red on top... the rising ADX indicator only correctly indicating an acceleration in the decline. The only comparable chart situation as that was February to April of 2018, when gold was already in a flat market, in horizontal bollies, and then it moved sideways... until the pattern ended. Comparable behavior now will have it continue the decline:
The same look now... in a downward sloping chart... not suggesting a bottom now, but more of the same, only declining along the lower bolly now. The ADX now is rising off a lower level than back then... still... nothing more positive in this chart than "wait for it"... as the risk of a continuation pattern lower is much higher now than in prior potential bottoms. A week or two sideways, and then a move higher... would fix the chart deficiencies in the gold chart... but the key point... is that it may not be the gold chart that dictates where gold goes next...
Silver back then (April-June 2019), as often, was more dynamic, and continued lower as gold paused, then immediately reversed higher with gold. That pattern did define the bottom set in silver leading to the top in August 2020, last year, only ignoring the collapse in March 2020 as an anomaly if you like...
But two other issues... The silver chart pattern that might matter more now, for gold, is that in the -ADX holding above the +ADX... for essentially all of 2017 and 2018... as it dropped by over 50%. Silver today, though, doesn't share that pattern exactly... as, unlike gold, it has a green over red pattern now... +DI over -DI... with a flat indicator line showing little acceleration... which may be indicating a change in leadership of silver over gold... as silver has, very unusually, declined less than gold recently... rather than amplifying its moves. But, as silvers ADX indicator line is not moving higher, like golds, showing an acceleration... but is slowly moving sideways to lower... showing its acceleration holding steady or tapering off slightly ? It appears, for now, that silver has defeated the similar chart patterns imposed from 2016 to 2018 in gold, with more of an upward bias in the long term patterns since 2016... being confirmed now in silver's lesser decline versus gold since August 2020... at least so far. Silver has both a longer term upward bias,,, and a shorter term upward bias... relative to gold... not just following and amplifying golds moves as it did in the past.
Other warnings there, though... GDX weekly price, tracking down near the bolly mid-line, dropped below its 50 MA in late January... before falling to the lower bolly. SIL weekly price, already following gold down to the (much better looking) lower bolly, has just this week crossed its own 50MA at the lower bolly. Silver is, very unusually, doing well in resisting gold leading it lower... and is lagging its decline significantly... which doesn't mean it is certain to continue winning the fight ?
Major bottoms occur when prices sustain a rise up through a flat or declining MA... tops occur with prices falling below a rising MA... which is the case that we see now.
But, there are two other issues in the charts...
First, in silver and gold, both, silver far more... the charts show significant recent declines in the accumulation/distribution line... But, in gold, the chart deviation occurred in August of 2019, and has been sustained since, while the price is tracking that depressed ADL in parallel...showing strong correlation with it... even through the March 2020 events. In silver, the same deviation occurred in August 2019, but price did not track it, until falling down to it in March 2020, but then the ADL rose with silver, in contrast to gold, and it did not deviate lower again until a precipitous drop in January of 2021... then with a HUGE deviation... and the price movement since then is NOT tracking in correlation... rather than mostly just ignoring it.
What "chart school" won't tell you about the ADL that matters... is not about the degree in which it can easily be spoofed by chart painting... "which manipulation would never happen in gold and silver markets"... /s But a far more important oversight is in failing to note the lie that the ADL doesn't tell... as the ADL also provides a fairly decent proxy for the magnitude of short positions... that being one reason it is an imperfect price predictor... as the shorts don't always win their trades... even in spite of often taking overly large positions and holding and growing them as a means of price suppression. That works... when the market does take the "selling" influence as indicating relative judgement of value in a free market trade. It doesn't work so well... when the majority of traders in the market see it for what it is... as price manipulation... and choose to accept shorts as a clear benefit in a guarantee of future buying... rather than as a risk to their holding value they recognize... in a manipulated trade. The divergence in premiums in physical versus the paper trade in metal... is a clear tell that the short trade has failed in price suppression efforts. Gold and silver ARE both being shorted heavily... both to suppress perception of inflation risk as inflation occurs... and also just for a trade, while hoping to lure the price to drop all the way down to the short driven ADL in the next market event... as did occur in silver in March 2020... with the faked/spoofed/paper price dropping to $12 and below... while real physical premiums soared... proving "the market price" a lie. Silver is being shorted far more, now, after being allowed to rise more as gold has been suppressed more and for longer... but gold traders clearly aren't winning the battle with the shorts, or even trying to, rather than maintaining a steady balance in an ongoing downtrend steered by the shorts... while the silver traders are, thus far, mostly winning the battle with the shorts... both long term since 2016, and in the short term... For either gold or silver to rise significantly from here... the trade requires that shorts will have to capitulate... which they did not do at the end of the decline in 2018... until the lower low (silver) or higher low (gold) at the end of May in 2019.
That leaves a question about the nature of the divergence between gold and silver since 2016, and again since August of 2019.
The two factors are... First, silver investors are very actively resisting the shorts, and doing so far more aggressively than the gold traders... enough so that silver price wars are making headlines... as gold is ignored... forcing silver shorts to become far more aggressive, and even flagrantly violate the law in silver trading recently... in attempts to regain control over silvers persistent rise with more aggressive efforts in suppression. And, its really not working out very well. A second reason, why its not working out very well... is that silver is not just a monetary "inflation indicator" metal but an "energy metal" as the fad has its industrial uses labeled now... that has a "perfect storm" issue brewing... with overlapping drivers of demand growth... monetary and industrial... paired with overlapping drivers of large reductions in future supply... at a time when large historic reserves have been drawn down, removing a massive and long persistent overhang in stockpiles... while the warehouses have been emptied out. The margin between demand and production is razor thin now... with no reserves to be drawn down... as demand accelerates. The shorts can't win this fight... in the long term. Silver's monetary role... won't be what drives demand... or its future price... as a parallel but more volatile proxy for gold...
Worth considering that JPM and Goldman may not be on the same side of the trade in gold, and particularly silver, anymore, now... as JPM's contracted role in laundering silver from the U.S. Government's stock pile, removed for the governments industrial uses in WWII, has come to an end... in theory with that 480 million ounces now having been returned to the Treasury to be maintained in deep storage as monetary metal without being removed, or hypothecated and re-hypothecated, again... at least in theory. JPM might actually be long silver now, in fact... playing Goldman... as supplies shrink and industrial demand rises. Or, Goldman might be fronting the Treasury interest now in shorting against the "still immovable" stockpile to protect the dollar... while simply failing to recognize the market deficit that exists now... still requires physical delivery MUST occur... making all of those shorts taken out against an immovable object not really functional. Worth watching.
The final issue... is the one that probably matters most in the short term timing... as the correlation between gold, silver, and the QQQ... matters enough to obviate their charts. QQQ is definitely indicating a risk, at least, of a major decline occurring soon... If that market event many suspect is coming does occur... say, between now and June 21st... odds are very high that all assets will decline in price in parallel... as confidence suffers with a major market event...
The risk of buying gold or silver... near a major market peak in the stock market... is a much about the larger stock market risks as it is the charts in gold and silver. If we repeat October 201, or March 2020 (similar in ADX +DI falling -DI rising to meet)... or worse... as it seems the pundits are predicting... you get one result. If we repeat February of 2018, or June of 2019, you get another... just a wobble in the market. Many reasons to think the market has peaked here... which doesn't require looking at these charts to understand. March 2020 was a potential Armageddon as Covid imposed itself. We should be seeing "relief" from that occurring now... but instead it appears the market anticipated that relief too much... as we're seeing "not so much relief as new stresses"... while politicians struggle to sustain the virus lockdowns... to impose control... and contain the economy to prevent growth... against the demand of people and against reason... at the same time interest rates have threatened to rise in a way that will collapse the entire house of cards which is built on a bubble in debt creation that is not resolvable if rates are allowed to rise. So, reason enough for caution in not anticipating changes in trends too soon...
Heard a new note in cognitive dissonance today... first, as the Governor of Colorado extended the virus related requirements another month... resulting in riots in Boulder... Second, as the news talking heads on the MSM reported on that event... the "riots" were deemed to be a "party" without further definition... as if they were celebrating the removal of restrictions... and not violently opposing their continuation. The local news more honest in showing it... if not in labeling it as " There is no excuse for this conduct"
All of which, taken together... suggests to me there is likely still a near term risk in a major market event punctuating the transition from Trump's efforts sustaining the economy... to the Democrats seeking to end the policies that enabled sustaining it... while "the new pit crew dropping the lug nuts"... seems no reason to find confidence... only because the fire department rolled in on the ten year note and put out the fire...
Still seems reasonable to not expect divergences from the recent past Trump era... that proceed as smooth transitions... gold sliding higher and stocks slowly drifting lower ? The strongest correlations are seen at the right end of the chart, which is always the most worthy of our focus... as QQQ, GDX and SIL decline in close correlation in a strong short term move down... that ends QQQ's long term drift higher... punctuates gold's stead decline... and obviates silver's recent out-performance relative to gold, and the short interest.
Still expect gold to outperform the QQQ, and silver to outperform gold... which might well be a new trend sustained over the next three to four years, or longer... off a bottom in gold and silver... but this still looks more like a top than a bottom... more if you factor in risk of a market crash... and MAs being violated in a down move, not an up move...
QQQ says it is at a peak... set for a fall... GDX and SIL say they are ready to make a bottom... but that doesn't define where and when that bottom will be made... only says that you will probably to want to join that trade at the bottom that is made... while avoiding the risks of big declines before it is made... and then hold on for what might prove to be a wild ride... Silver still the better bet as a practical market reality in the long term... but a damaged market in and after a crash might also delay that some ?
It is "the larger market' and QQQ charts more than GDX or SIL charts that will define what happens next... in the near term. But, while looking beyond QQQ and near term crash risks... seeing "new inflation risk" as not a limit... but new risks also for dollar holders in a declining dollar tied to new reasons beyond policy concerns (lug nuts) to lack confidence in the Biden administration... and, then 'the big one"... the growing risk that Biden et al might burn it all down and push it all of the edge of the cliff... either accidentally... or on purpose... |
