Currently all the precious-metal bulls are still asking themselves which way the most brutal sell-off from Thursday through last Monday may fit with our today’s world of the collapsing states and banks. The answer is this: Whenever the Big Players (pension funds, hedge funds, large banks etc.) need liquidity they don’t only sell off the markets/stocks/values that are lying in the loss-zone over the year, but they also sell their asset classes which are still in a thick and heavy surplus within a year.
For the millions of customers of the Big Players simply the profits arisen within a year have to be protected. The gains of 2011, inter alia gold, silver and platinum are just being covered to prevent the profit-positions from melting away. During any sell-off also the winners use to go to the dogs. The annual profits are being taken along by covering the positions. It doesn’t even take a high selling pressure. Actually just the buyers are missing.
That is also shown by the COT Gold Report (state Tuesday, September 27, 2011) that was issued on Friday.
The large speculators – mainly the hedge funds – reduced their gold-longs dramatically by -31,086 contracts thus assuring their year profits or they were forced by the new margin hike to part with many of their short positions (-8,358) to build up their liquidity. The large banks like Morgan Stanley covered many of their short positions within the three day sell-off (-25,745). If they had intended to fuel the sell-off believing in gold to keep on falling they would have had to go on raising their short positions!!
In the final analysis they improved the shining hour to part with the prevailing loss positions. The gold producers (mines etc.) took advantage of the sell-off grabbing what they could dirt cheap. They raised their long positions!! Silver developed just the same. All in all the actual COT Report for gold and silver is as bullish as it hadn’t been for three years.
From the volume point of view and from the conduct of the Big Players the precious metals might have come to their bottom or be closely before their final lows, respectively.
I’d like to go into the charts of gold, silver and platinum analyzing the blood on the carpet and offering a plan or an outlook what might still be in store for the precious metals during the next month or the coming months, respectively.
Starting point is gold that everything began with. It gave us the first sign that something wasn’t right. In August it reached the double arc rebounding from it at the beginning of September.
Above at the highs the European central banks covered their long positions they had acquired in June. Likewise in time we covered our long-term gold positions at the major gold target http://www.gunner24.com/newsletter-archive/august-2011/14082011/. All of a sudden the buyer sections were missing, and after the Operation Twist, within three days gold cracked back to the support Gann Angle that had been tested umpteen times (green/red circles).
It’s true that gold achieved a little rebound since the Monday low, but still the buyers are lacking, the last days no buying pressure arose so we can assume that the support Gann Angle is going to be tested again in October. At least it will be 1560 then.
With its September closing of 1626.50 gold closed above the 3rd double arc. Thereby gold did not generate a sell signal. So, since the support Gann Angle resisted in September we really have to work on the assumption that it is going to resist in October as well, and gold is supposed to rebound from it.
Thus, for the time being I assume that as early as next week the real and true fight for the continuance of the support Gann Angle at 1560 will take place. The shorts will try to break that mark. If they accomplish – I hate to say it – in the maximum case the 1300 will be looming, namely fast, the sell-off would go on. The 1300 are the very most important support – at the 2nd double arc. But beforehand, also the strong support horizontal will get into play where gold might return upwards at 1455 any time. When will this Gann Angle be broken? In the past gold dipped underneath maximally by 30$, so a low in October that is lower than the September low would be the first – most noteworthy – indication for a further decline.
Silver in the monthly chart:
In terms of chart technique silver is a disaster. On the one hand it didn’t only break through the 4th double arc but it closed simultaneously with the September candle below the 3rd double arc. It’s a double sell candle. A stronger sell signal is almost impossible. Everything is to be assessed negatively.
But of course it’s very risky to continue trading upon furthermore falling prices. In the final analysis the merciless sell-off washed away all the serious little speculators and market participants who might be damaged earnestly furthermore by the possible short-attacks of the "Big Players".
Since nobody is standing in the ring with the big ones any more being able to join boxing, just the fundamental facts are counting again now. The positioning of the market participants is such a fact which is very bullish for silver, as analyzed above with the COT Report.
Like in the case of gold, first there’s a clue for a significant low. It was lying at a cross support that might resist like the support Gann Angle in gold. I think, here again the test of the Monday low next week will have to be awaited. If it resists a two to three week interim recovery phase like in gold until 36$ (corresponding target for gold would be 1730$) might be on the agenda. In case the September low is fallen below a possible target for October will be at first the 23$ at the next lower support Gann Angle. Not before the October closes below the 2*1 Gann Angle the 1*1 Gann Angle will become the long-term target: 19$! If October succeeds in closing above the 3rd double arc again silver will be out of the woods because in that case the 4th becomes the most important long-term upwards target = 37-38$.
Platinum might have produced an important low as well, last Monday:
Here’s another way of consideration. Starting from the all-time high we apply a 1 candle setup downwards. The 2008 rebound started at the 3rd double arc, it broke the 2nd double arc upwards in 2009, and then platinum was dominated by the first double arc for nearly two years. Even though platinum followed the first upwards it was never able to really break it upwards. Now in September platinum cracked down. It’s to be assessed as very bearish that the 1*1 Gann Angle was re-broken. But there was a positive reaction at the upper line of the 2nd double arc which stopped platinum for the time being. The platinum setup is showing us something important: Since the upper line of the 2nd double arc is going upwards no lower low should actually be allowed than the September low! But if it really happens platinum would have to head for the next lowest important monthly support at 1345!
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