Here is a look at the weekly chart of silver which has already fallen below chart support near $18.60 and thus far has not been able to regain its footing above that key level.
Note that the indicator below the chart has made a new low for the year which is suggestive of further downside yet to come. The key will be whether or not the metal can stay above $18.00 which is the next level of chart support. If not, it looks headed for a test of the bottom of the 2010 congestion zone near $17.50.
A weekly close below $18.00 would suggest the beginning of a TRENDING MOVE LOWER.
One of my main metrics for measuring the intensity of Western-oriented investment demand for gold is the giant ETF, GLD. When gold prices are rising alongside of rising reported holdings in GLD, it is a positive sign for future metal prices. When prices are falling, alongside of falling reported holdings, it is a negative sign for future metal prices.
Today's reported holdings dropped about 4.2 tons bringing the total to 784.22 tons. That is a mere 7.3 tons above the lowest level posted this year back in May.
One can speculate whether or not the holdings with set a new low for the year as we move ahead but in my mind, it is indisputable, that investors continue leaving gold and buying stocks, as that is where the gains are to be found.
I think it also essential to remind the more technical analysis-oriented investment/trading crowd out there, that the large speculators (hedge funds and other large reportables) still remain positioned on the NET LONG side of this market. That is based on the most recent Commitment of Traders report. As these key technical support levels on the charts give way, those positions are increasingly underwater and are being liquidated. It is that long side liquidation, coupled with an increasing short side contingent, that raises the very strong possibility of seeing gold change handles from "12" to "11" once more.
Time will tell.
The big thing that traders are taking away from today's much anticipated FOMC statement is the $10 billion further reduction in QE which is now down to $15 billion/month. Of that remaining $15 billion in QE, $10 billion consists of Treasuries and $5 billion of MBS debt. The Fed is on track to wrap up QE completely next month and that is what has traders pushing the Dollar higher and gold lower. Simply put, the era of abundant liquidity here in the US appears to be over. Note to QE taper deniers- you had better wake up in a real hurry. The market is telling you clearly that it believes the Fed.
Not that the Fed is in a hurry to raise short term interest rates. That still does not look as if it is going to happen any time soon.
What it therefore translates to as far as traders are concerned, is an environment in which low inflation still appears to be the general rule and one in which economic growth will be slow to moderate at best. This means that stocks are still the place to be; gold is falling out of favor even further, and commodities in general are going to be moving lower.
Not that they will not be exceptions to this general rule based on the individual set of fundamentals governing each specific commodity market. However, the big leveraged macro trade buying indiscriminately across the entirety of the commodity sector is not in the cards for now.
The result of this readjustment is that the Dollar remains the "Go-To" currency which can be easily seen in the steep plunge in the Yen, Euro, Swiss Franc and Australian Dollar ( the Aussie is a good proxy for commodities in general). The British Pound is getting a bid of a respite as traders are afraid to push too hard on it with the upcoming referendum over Scotland tomorrow looming.
With the Dollar/Yen hitting a six year high, the story is that the currency markets are going to dictate money flows and for now, those flows are into equities and out of commodities, including gold.
I have a full plate right now but here is a quick updated chart of gold for the reader. Notice that it is poised for a test of the last remaining support zone standing between it and the psychological $1200 number. That zone extends from near $1220 down towards $1212. If it fails there, it is going to test $1200. Below that is the low at $1180. Below that? That is scary.
India/Asia may be buying for festivals, etc. but that in and of itself will not be enough to launch gold higher on any wild surge higher before the year is out; not without Western oriented investment demand which has made the vote against gold for the time being.
One more quick chart - the US Dollar... If the Dollar closes through 85 basis the USDX by this coming Friday afternoon, look out above!
