"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, December 2, 2013

Gold Trashed, Silver Obliterated

The short covering bounce that occurred last week at the end of the month of November sure did not last long! Traders welcomed in the new month of December by brutally mauling both of the precious metals with them particularly having it in for silver which is down nearly 4.4% as I type these comments.

Strength in the Dollar on the heels of higher interest rates in the US Treasury markets, brought a large amount of selling across the commodity complex, with the exception of crude and the liquid energies. The result - both gold and silver collapsed down through important chart support levels touching off an avalanche of sell stops and bringing in more new short selling as traders attacked the metals with a vengeance.

The carnage was even more evident in the mining sector  ( HUI ) which fell through psychological chart support at the 200 level. The beleaguered sector is no doubt going to see casualties as I expect that we are going to see the end of some small mining concerns as acquisitions/buy outs do not seem that far off now.

I hate pointing this out but the lowest monthly CLOSE of the last five years was 193.87 made back in October of 2008 just before the market got wind of the start up of the first batch of QE. Currently, as I type these comments, the HUI is at 197.43. a mere 4 points away from that level. If the miners cannot garner some serious buying support right here, right now, at these levels, I fear we are going to see this index drop all the way down to that spike low below 160 before this is all done.

Until we see some sort of evidence that the sentiment towards the metals has turned for the better, there is simply no interest in owning the miners, even at these distressed levels because no one really knows how long both gold and silver prices are going to remain at these lower levels. Only investors with the longest of time frames as interested in owning these. The vast majority do not want to tie up precious capital in non-performing assets, especially when those assets continue to plunge.

Silver lost chart support at $20 and plummeted very swiftly into the support level noted on our interview over at KWN this past weekend, namely, $19.25 - $19.00. It is now a definite teenager. Failure to hold here and a drop below $19.00 would portend yet another plunge in the near future towards $18.15 - $18.00.

Look at what happened in gold when it lost support in the red rectangle... sell stops were hit and triggered and in turn brought in a fresh wave of short selling into gold. The volume was very large as has been the pattern in gold for some time now. The short covering rallies seem ferocious when they occur, but their volume remains muted compared to the volume occurring within the direction of the trend, which is DOWN.

Switching over to the Daily Chart, there is also reason for concern. Note the LOWEST CLOSES of this year, not the lowest price, but the CLOSES. Gold is within $5 - $6 of that level. Bulls will not want to see current price penetrate that level without an immediate, sharp rebound higher. If such a thing were to occur (the breach of that level) it would indicate that the pent-up buying that was present this past summer when gold fell to that level is NO LONGER WITH US. Obviously, that would portend another drop lower that would challenge the actual spike low near $1180.

At this point, the bulls are in serious trouble unless they can take the price back above Friday's high near $1255. That would provide a glimmer of faint hope that a potential for a double bottom exists. As things now stand however, the Bears are firmly in control of the market. Bulls need a miracle.

I want to state again for the record, this is the reason that I become so disturbed by these constant predictions concerning what gold must or will do. Just last week we were treated to yet another one stating that a big short covering rally was imminent yet again because it was the opinion of this novice "expert" that there were a lot of hedge fund short positions in the market. Yes -  - this self acclaimed expert on gold possesses some esoteric knowledge that the rest of we mere peons do not which informs him exactly when a short position is too large and must be covered. Meanwhile gold gets pummeled down even further. When will we ever be rid of this sort of thing? And people wonder why gold keeps getting sold off - there are still too many damned bottom callers.

Here is the simple truth - the TREND IS LOWER. Until it changes, rallies are going to get sold, dwindling gold stocks or no dwindling stocks, hedge fund short positions or no hedge fund short positions, backwardation or no backwardation, Chinese buying or no Chinese buying, whistle blowers or no whistle blowers, etc, etc., etc. When the trend changes that will indicate that the sentiment towards gold, which currently is abysmal, will have changed. In other words, the market will tell us when the move lower is reaching an end.


  1. Good letter Dan, but you forgot to mention that the answer for future gold and silver prices is in sparks, nv. The answer is .....there is no answer, just follow the action boys and stay with the flow. And take the Saints +6 tonite; steve

    1. >>>Saints +6 tonite<<<
      Let's not get too delusional Steve. Hawks at home?......You can't be serious?
      The nation has to know by now that we play down or up to our competition.
      The Saints get crushed!

    2. Yes John, I am very salty, blowing 7 straight now; sparks

  2. Who was the "expert" this time? Doody again?

  3. Dan, great piece again as usual. I am one of the biggest long term gold bugs you will find, however, these huge fiscal spending cuts made by congress really concern me near term as it is taking the support right out of gold. As deflationary momentum starts to pick up, Yellen will have to step on the gas but also put pressure on congress to implement huge fiscal stimulus packages similar to 2008 in order to kick the can down the road again and stop deflation. Until the Fed and congress panic there will be better opportunities to buy soon. Also, thanks for the input on miners. I do like miners long term and bought in recently. I am only down 12% atm but will stick to my strategy of acquiring at further depressed levels. This correction will shake all of the strongest gold bulls to the core!

  4. Alex

    Balls man, you got serious balls.

    The Dow may yet get what it needs, a serious scare.
    We are way closer to the bottom in gold than the top, I have a core position that would be pointless to sell right now.

    Still holding DUST and GLL

  5. Nice call on DUST Dean. 160 HUI seems about right: Although it's a level last seen in 2003... a HUI:GOLD ratio of .16 (where we are now) + gold at about $1,000 would a person there. It seems like we'd see some support around 178 where the monthly lows from 2004 & 2005 sat.

    You can't even call it capitulation in the HUI as the volume was pitiful. As to gold, just crazy: The Ukraine is burning, China is flexing it's muscle in the Senkaku Islands, Iran thumbing its nose at the US, The world's economies teetering on deflation after five years of money printing and it still can't catch a bid. For my own part, I have a fairly big keg of dry powder to buy my last batch of gold coins when gold hits 3 digits.


    Yep, there will be some awesome bargains out there.
    I agree on the capitulation, I think this may be the final low volume puke.

    I hope the Dow finally does it's badly needed correction..like to ad to my position there too.

  7. I'd like to take a nice short position on silver at this point. The price is becoming very handsome for affordable short plays. Now it's time to short sell the spikes. I think shorting SILVER is safer than shorting stocks because even if the equities take a dump here for a correction everyone would pile into the dollar. SILVER is going down either way now whether the markets go up or go down. It just doesn't matter.

  8. To your last summary para I say: Amen.
    Hope you had a restful thanksgiving weekend !

  9. Damn - i got out of my short last week at $1235...thought we'd be revisiting $1290~$1305 before trending downwards again. I really want to get into the NUGT ETF...but fear that the HUI could hit 160p is stopping me. One thing l know, as soon as im in i'll stop following the price action...need to find another hobby. Any suggestions?

  10. Okay..just read Martin Armstrong.
    Now he is talking a possible cycle inversion…this means the Dow could actually correct.
    So..my question is….what do we do Martin?
    He has criticized those who only say "Buy" and now he criticizes those who only say "Sell" …that's profound.
    Maybe someone here who follows and obeys Armstrong could tell me what Armstrong is telling his faithful to do, buy? sell? hold? hedge? average down?

    Of course he had to put in his usual barb towards anyone who holds gold.(no matter what the subject)...c'mon…let's all get over it…okay ?

  11. Armstrong said that the Dow was lining up with the ECM (ECM to make a high at end 2015), but as the Dow isnt correcting as he envisaged (in November), he is now saying that a high may be reached in 2014 followed by a correction into the ECM peak, followed by a return to the bull market. The weekly arrays (printed 2 wks ago) showed that gold faced directional turns this week and next. Anyway, im sitting on cash, waiting for something to do. IMHO, I think he isnt against gold per se, only against the shrills who perpetually call for gold to rise, say that the market is manipulated (tout this as the only reason why gold isnt rising), and that only gold is real money.

  12. Thanks Kitcher
    I also am heavy in cash with some gold and general equities.
    I guess we will have to continue to read Armstrong to see if he will know ahead of time about a cycle inversion.
    If that does happen then where does money go? back into bonds?
    He does occasionally state that gold requires patience and will continue it's bull run at some point.
    I find the continual gold trashing is somewhat childish, even if it is directed to the shills.
    Someone that brilliant should also know how to be professional and rise above that.

  13. The gold trend is down, so holding DUST (17.5 % up today) shouldn't hurt to much during the gyrations. Cash is still king until you need decent dividend returns to tread the water of what banks pay out which might as well be negative.

    If gold bugs hold Armstrong accountable for this gold correction then their pain and gnashing of teeth is going to get much worse in the days ahead. Armstrong (or his computer program) even has trouble with short term directions but unlike the gold bugs, his computer is dynamic and will change a short term outlook to fit current action. Long term, it really never changes, there really are (human) cycles.

    If the SOW drops or pauses (Xmas sales won't help), take Armstrong's hint and buy the S&P, should outperform after a correction/pause as a better index makeup/listings.

    Silver, I am surprised is doing this well (cough). Must be the industrial use in solar panel type products. In the long, long, long run, I would think junk silver coin bags will perform better than gold. The US government will have a hard time confiscating their own impure coinage while you pay the gardener with pocket change.


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