Silver Builds on Previous Gains; Nears Breakout Point

Both silver and gold are moving higher today as they add to gains made in yesterday's session, gains which I might add, tremendously improved the technical chart picture for silver.

See the chart posted yesterday evening in reference to silver but note also the following chart detailing the strong move higher in the Continuous Commodity Index.

It is closing in on its 50 day moving average which closely corresponds to the level near 565, the line marked, "initial resistance" on the chart.

As you can see, since September of last year the entire commodity complex as a whole, has been trapped within a defined downtrending channel. This is important to note because it has enabled the idea that the Fed's easy money policy are not proving to be inflationary, to gain credence. After all, if wholesale prices of basic commodities are trending lower, it is difficult to make the case that an inflationary episode lies just around the corner.

This latest move higher in the index must therefore be closely monitored as any change in the technical posture of this chart, will be the first sign of inflationary pressures beginning to surface in the economy at large. If, and this is a big, ""IF", the index pushes past BOTH resistance levels noted on the chart and breaks out of the channel, especially if it clears the region near 578, expect to hear increased chatter about inflation. This should especially benefit silver, which is much more sensitive to inflation pressures than is gold, or least has been if recent past is any indication.

Quite frankly, I have been a bit surprised that it has taken so long for the sector to see much in the way of money flows, especially with the equity market moving so strongly higher on the thesis that the global economy is recovering. If it is, especially in the case of China, then commodities as a whole would also benefit under such a scenario. Throw in the fact that a Yen Carry Trade, or even a Dollar Carry Trade, could easily be used by aggressive hedge funds to leverage themselves up to the gills once again to try to take advantage of the ultra low borrowing rates to fund such a carry trade, and the ingredients for a rally in this sector should seemingly be coming into vogue.

Moving back to the silver chart, it pushed through the 200 day moving average in yesterday's trade but instead of falling back below that level, it has added to gains and is now threatening a  breach of what has been tough overhead resistance near the $31.50 level. If it takes that out, it will make a try at the downtrending 50 day moving average just shy of the $32 level.

The RSI looks good as it has pushed through the peak made in that indicator coinciding with the first push to $31.50 at the beginning of this year.

Incidentally, the Platinum group metals are both putting in strong performances today; this is helping silver as it tends to feed into an impulse to buy industrial metals.

Gold is strong today as it works towards its overhead resistance first near $1685 but more specifically near the $1696 level. That level also happens to be where the falling 50 day moving average comes in. Expect some opposition to the metal if it makes it to that point.

Gold needs to put a handle of "17" on itself if it wants to get any excitement going in terms of sparking some short covering and more momentum oriented buying. If it does, all of those fresh hedge fund short positions that were added below $1650 over the last two weeks will be in serious trouble.

Response to Texas Secession Requests Settles Nothing

I found the White House official response to the Petition on its website requesting that the state of Texas be allowed to peacefully secede rather comical.

Invoking Lincoln, as if to lend credence to its dogmatic denial, settles nothing.

First of all however, before I get to that, I wish to state that no state need ask "permission" to secede. Secession in and of itself, is the last resort of free people whose unalienable rights are no longer respected or protected by a runamok central government - Such a government which regards itself as superior to any document limiting what it can or cannot do according to that founding document. Take away that right, and no people can be said to be truly free for what you have in effect created is a FORCED/INVOLUNTARY UNION from which no man or woman can ever hope to be separated, irregardless of any future circumstances or chain of events which might arise in the future.

Does any rational individual believe that under such circumstances, those who are the oppressors would graciously accede to any "request" from the beleagured citizens to depart? Hearkening back to the time of Israel in its bondage in Egypt, , one might just as well have expected Pharoah whom when COMMANDED, not requested by the Most High, to let His oppressed people go free, stubbornly refused.

The response to any "response" from the central authority is taken directly from the founding document of these United States.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

Appealing to Lincoln and his warped vision of such a thing as a "perpetual union", settles nothing in the matter. The South was subjected by force and brought back into the union against its wishes. We might as well argue that had the British defeated Washington's army at Yorktown and captured his officers thus ending the war, that the attempt by the colonists to "declare their Independence" and "secede" from British authority was also null and void. Force only settles one thing - that a governing power bent of crushing the unalienable rights of its citizens can and will succeed given enough force of arms even thought it may be resisted.

The whole idea of a Constitution creating a system of Federalism with limited power to the Central Authority and checks and balances upon the three, co-equal branches of government, was to prevent the TYRANNY OF THE MAJORITY. The Founders well understood that a purely democratic system of government would eventually fail to secure liberty since the ultimate outcome of such a system would be the permanent subjection of the rights of the minority to the whim of the majority.

Unalienable rights are God-given, meaning that they cannot be infringed upon by government. Indeed, government exists only to SECURE or PROTECT AND MAKE CERTAIN, these rights are not violated or transgressed.

Here then is the main difference between those on the left and those on the right. The left wishes to create their version of utopia here on earth. The right believes that while a well-ordered and peaceful society is the ultimate purpose of any government, here, in a fallen and sin-corrupted world, no utopia is possible. Given the nature of men, steps must be taken to ensure that they never hold sufficient, unbridled power with which they can usurp these unalienable rights.

The left, in its attempt to create its paradise, takes whatever steps it deems necessary to bring it about, EVEN IF IT MEANS PUSHING ASIDE GOD-GIVEN UNALIENABLE RIGHTS. You see, a large part of the problem with the left is that many are either agnostic or are true secularists. (As an aside - there are some who are agnostic who still understand something about human nature and thus liberty and the need to preserve it from governmental overreach but such are few and far between.)

This poses an immediate clash with those of us who believe in a God, a Higher, Supreme Power, to which all men must answer and who is the bestower of certain rights. If there is no God, no Hgher Power, then the very idea of unalienable rights derived from Him becomes an archaic, utterly meaningless concept.

I will go so far as to declare that many of the left see the state in the role of God, the Higher Power, to which all must submit and that it and it alone is that which dispenses "rights" to the citizens or subjects. It may thus grant or withdraw any such rights that it grants depending on that which it aims to achieve. This is why you will see constant attacks on the Constitution by those who hold it up to ridicule as outdated or insufficient to deal with our modern times. The simple fact is that it stands as an obstruction to their grandiose schemes.

What happens however when the check on power which the Founders built into the Constitution is pushed to the very edge or even disregarded? What are free men to do when their own central government begins to whittle away at their unalienable rights all in the name of achieving some leftist nirvana (income equality, equality of outcome instead of equality of opportunity, reduction of violence, free medical care, etc.)? What are they do to if their voices are no longer heard nor represented in the halls of power in a far away district? What course can they take if they find themselves in the MINORITY now subject to the whims of a ruthless majority which feels no restraint upon its quixotic quest for an earthly paradise?

The answer should be as "SELF EVIDENT" as it was to the author of the Declaration of Independence who deliberately chose those words to describe a sacred truth - namely - they have a right, nay a duty, to cast off such a government, separating themselves from it and pursue that system of government which can best secure those unalienable rights.

This is what secession means and why those in power will always detest, despise and condemn it. I have said it before and will say it again - the FORCED UNION of Thomas Jefferson and Karl Marx is doomed to failure. One side will eventually vanguish the other as there is no common ground between them both. It is best to let them both peacefully go their separate ways.

Silver Chart

Silver finally managed to get a close above that stout resistance level at the $31 level. On a day  in which the platinum/palladium group metals were all moving to the upside, it is refreshing to see the grey metal finally going along for the ride.

The ideal technical price action now would be to see additional upside movement up and away from this level without surrending its gains and falling back down below $31 again. Even at that, you can see the very short term uptrend that has formed in silver over the last week+ of trading.

A sharp push now through the $31.50 level will spark some decent short covering and serve to bring in new momentum based buying.

We will see if silver can do just that.

Downside support remains slightly above the $30 level.

HUI showing some Signs of Life

That the precious metals mining shares, as evidenced by the HUI, have been a disappointment to their holders, is certainly an understatement. The HUI registered a loss of 13.2% last year in 2012. It did manage to recover from its worst levels having sank below the 380 mark at one point although that was little consolation to those who are long term holders of the shares and did not sell after the chart pattern broke down in the fall of last year.

That being said, there are some signs of life in the sector based on the chart analysis of the HUI. Take a look at the following chart that contains one of my favorite indicators, the old, reliable RSI or Relative Strength Indicator.

What I have constructed is a simple 3 day moving average of the actual RSI indicator itself in order to smooth out the signal line and eliminate the sharp spikes. Do you see what is happening?

Following the breakdown from the September high, as price descended, the RSI followed it lower in a rather smooth fashion. Lower prices on the HUI were matched by lower levels on the RSI. That continued until the middle of November when the index caught a bit of a short covering pop that looked as if it might put an end to the decline.

However, the rally lasted no longer than 5 days and prices began to move lower again. However, the increase in the number of up days even as price worked lower began to be picked up by the indicator as it no longer marched lock step in union with price itself. As a matter of fact, the indicator has begun registering a SERIES OF HIGHER LOWS even as price has been making a series of LOWER LOWS. In other words, a near perfect textbook case of BULLISH DIVERGENCE is appearing.

This is a clue that perhaps the sector is getting ready to experience an upmove and finally reverse the downtrend. It should be noted that this is just a POSSIBILITY of an upward move occuring, not a certainty.

What needs to occur to confirm a definitive bottom is that an overhead resistance level must be taken out, preferably with good volume across the various gold shares that comprise this particular index.

Based on this chart, I have noted such an area. A CLOSING push through 455 or so will be a strong affirmation of such an occurence while a push through 465 or so will turn the chart decidedly bullish.

Let's wait and see what develops. For the time being note that were price on the HUI to fall down through support near 420 and be unable to recover that level on an intraday basis or by the next day of trading, the pattern would be negated and one would have to wait for further price action to decipher what comes next.

Silver Chart

Silver has been stuck in a range trade for the last month with selling entering on approaches to $31 and beyond while buying has appeared on moves down to $30 and lower.

The RSI or Relative Strength Index has been stuck in a range between 65 on the top and 30 on the bottom. The indicates a market within a consolidation pattern with a bit of a friendly bias to it. It's ability to remain above 30 on the RSI suggests that the next move will be to the upside although it will need to push past that stubborn overhead resistance zone noted on the price chart in order to do so.

I think that as long as Copper, Palladium and Platinum continue to look strong on the price charts, the Silver bears are going to have their work cut out for them in breaking down the support zone noted. Also, it is difficult to conceive of this market falling apart with equities continuing their upside party.

Any move through the late December high near $31.50 will spark a strong wave of short covering.

Trader Dan interviewed at King World News Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/1/12_KWN_Weekly_Metals_Wrap.html

Gold Chart - Update

Gold gave back a goodly portion of its torrid gains from yesterday in today's session. In spite of the weaker Dollar, it was hit with a fairly good wave of selling. Noteworthy however is that it did end the pit session ABOVE the 200 day moving average after having fallen being this level at one point during the trading session.

The price action continues to reflect the uncertainty abounding in the minds of many regarding gold's future. I will not be convinced that this market is going to undergo a sustained move higher until it clears that solid blue line near $1698 and preferably until it gains a handle of "17" in front of it. While the close, particularly to end the week, was at least NOT BELOW that 200 day moving average, it is not enough to turn the technicals friendly yet.

Clearly traders are selling rallies in this market as it works within a defined range trade although it is disappointing to see it unable to at least climb back above the $1690 level before moving back to the bottom side of the range. It was unable to even gain the $1680 level before the selling started.

One thing to note - the COT REPORT is telling me that there is a growing number of hedge fund short positions that were established in gold BELOW the $1650 level. Those positions are under water. The key for the bulls is to push price high enough to cause some pain to the shorts; enough to force them out. That is why it is imperative that the resistance level noted on the chart is conquered. Failure to do so will give these losing short positions a new lease on life.

Downside support remains intact from $1640 on down towards $1626.

Summary - more of the same boring price action in gold  but for at least this week, the bulls managed to eke out a minor victory. Whether they can build on that next week is anyone's guess right now as it seems for all practical purposes that the hot money is flowing into equities for the time being. The Commitment of Traders report indicates the loss of speculative interest in gold, and silver, for the time being. That will need to change if these markets are going to get anything sustainable to the upside.

A Sermon to the Land

I am fully aware that the readers of this site do not regularly tune in to listen to my musings on the political and spiritual condition of the nation but rather to read my interpretations of market action especially in the precious metals realm.

However, I feel compelled to express what I am calling a sermon to the land, based on the events I see unfolding around me in this my beloved country.

Some who read this will no doubt mock and hurl insults my way. Frankly I do not care so spare yourself the time and effort to flaunt your mockery. Your words of contempt will do nothing to alter the depth of the feelings that I am now experiencing nor the rapidly building sense of dread that is currently arising within me.

Others will perhaps be astonished to learn that there was a time in history past in which a similar condition arose in an ancient kingdom resulting in a catastrophic series of events from which that kingdom never recovered.

If that is indeed the case and you are stirred by these words as if an echo of them has sounded within your spirit, then I will rest content in that.

We begin with a passage from the Old Testament book of First Kings, chapter 12.

1 Kings 12

New Living Translation (NLT)

The Northern Tribes Revolt

12 Rehoboam went to Shechem, where all Israel had gathered to make him king. ² When Jeroboam son of Nebat heard of this, he returned from Egypt,^[a] for he had fled to Egypt to escape from King Solomon.

³ The leaders of Israel summoned him, and Jeroboam and the whole assembly of Israel went to speak with Rehoboam. ⁴ “Your father was a hard master,” they said. “Lighten the harsh labor demands and heavy taxes that your father imposed on us. Then we will be your loyal subjects.”⁵ Rehoboam replied, “Give me three days to think this over. Then come back for my answer.” So the people went away.
⁶ Then King Rehoboam discussed the matter with the older men who had counseled his father, Solomon. “What is your advice?” he asked. “How should I answer these people?”
⁷ The older counselors replied, “If you are willing to be a servant to these people today and give them a favorable answer, they will always be your loyal subjects.”
⁸ But Rehoboam rejected the advice of the older men and instead asked the opinion of the young men who had grown up with him and were now his advisers.
⁹ “What is your advice?” he asked them. “How should I answer these people who want me to lighten the burdens imposed by my father?”¹⁰ The young men replied, “This is what you should tell those complainers who want a lighter burden: ‘My little finger is thicker than my father’s waist!
¹¹ Yes, my father laid heavy burdens on you, but I’m going to make them even heavier! My father beat you with whips, but I will beat you with scorpions!’”¹² Three days later Jeroboam and all the people returned to hear Rehoboam’s decision, just as the king had ordered.
¹³ But Rehoboam spoke harshly to the people, for he rejected the advice of the older counselors ¹⁴ and followed the counsel of his younger advisers. He told the people, “My father laid heavy burdens on you, but I’m going to make them even heavier! My father beat you with whips, but I will beat you with scorpions!”¹⁵ So the king paid no attention to the people. This turn of events was the will of the Lord, for it fulfilled the Lord’s message to Jeroboam son of Nebat through the prophet Ahijah from Shiloh.
¹⁶ When all Israel realized that the king had refused to listen to them, they responded,

“Down with the dynasty of David!
    We have no interest in the son of Jesse.
Back to your homes, O Israel!
    Look out for your own house, O David!”

So the people of Israel returned home. ¹⁷ But Rehoboam continued to rule over the Israelites who lived in the towns of Judah.

¹⁸ King Rehoboam sent Adoniram,^[b] who was in charge of the labor force, to restore order, but the people of Israel stoned him to death. When this news reached King Rehoboam, he quickly jumped into his chariot and fled to Jerusalem.
¹⁹ And to this day the northern tribes of Israel have refused to be ruled by a descendant of David.²⁰ When the people of Israel learned of Jeroboam’s return from Egypt, they called an assembly and made him king over all Israel. So only the tribe of Judah remained loyal to the family of David.

Shemaiah’s Prophecy

²¹ When Rehoboam arrived at Jerusalem, he mobilized the men of Judah and the tribe of Benjamin—180,000 select troops—to fight against the men of Israel and to restore the kingdom to himself.

²² But God said to Shemaiah, the man of God,
²³ “Say to Rehoboam son of Solomon, king of Judah, and to all the people of Judah and Benjamin, and to the rest of the people, ²⁴ ‘This is what the Lord says: Do not fight against your relatives, the Israelites. Go back home, for what has happened is my doing!’” So they obeyed the message of the Lord and went home, as the Lord had commanded.

My commentary:

The above story describes the event that led to the division of the nation of Israel shortly after the death of its wise king Solomon.

It is important to note that in the previous chapter, God had sent word through His prophet Ahijah that He would tear the kingdom asunder as punishment for Solomon’s sin of idolatry. No longer would the son of Solomon rule over the entire twelve tribes of Israel as ten of those tribes would be stripped from his kingdom and given to Jeroboam to rule. Solomon’s son Rehoboam, would have only the tribes of Judah and Benjamin over which he could exercise his reign.

Note this well - God Himself had determined to bring the nation of Israel to its knees and tear it apart. All that then follows is the execution of that will as it involved human agency. in its actual accomplishment.

Upon Solomon’s death the narrative picks up at the beginning of this chapter quoted above.

Here are the main points to take away from this historical event.

First, even though God had promised Jeroboam that he would be king over 10 tribes he still joined with the people of those tribes and attended the coronation ceremony of Solomon’s son Rehoboam. At that event, the people pleaded with the young king to lighten the burdens that had been placed upon them and that if he were but to do so, they would remain his loyal subjects.

This in itself was admirable as it showed the extent the people of the ten tribes of Israel, and Jeroboam, were willing to go in an attempt to keep the kingdom whole and united.

Understand that prior to this, Solomon had undertaken great public works projects and built lavishly and in so doing, had basically employed a type of forced servitude among the people. My understanding was that they were paid a wage for their labors; however, Solomon had imposed a system of heavy and oppressive taxation to fund his extravagance.

The request of the people to the new king is very reasonable when viewed in this light.

Second – the new king Rehoboam showed a glimmer of wisdom in taking some time to make a decision in regards to the peoples' request and particularly in consulting first with the elder statesmen of the day. These were men of wisdom and experience and understood the times and exactly what was at stake here.

Their council was both wise and prudent as it showed they were well aware of the passions and resentments simmering beneath the surface of the polity and which were threatening to erupt into the open with devastating results for their beloved nation.

They advised Rehoboam to lighten the burden his father had placed upon the people and acquiesce to their demands for the sake of unity, peace and harmony in the land.

Third – Rehoboam then made the foolish mistake of taking the council of the young hot heads. Their advice to him was not only foolish, short-sighted and petty, but it was to prove disastrous to the nation.

If I can paraphrase their council and speak in a more modern terminology I would put their advice to Rehoboam as such:

“You are the KING of Israel Rehoboam, the lawful heir of Solomon and the one who has the right to rule. Your word is law in this land. Just whom do these upstart rebels think that they are speaking to in such a manner? How dare they make demands upon you as if they are your ruler and you their subject? Assert your rights and your power and show them who is boss! Double their labors and raise their taxes further until you break their spirit and force them to bow to your will”

As you can see, Rehoboam’s vanity was putty in the hand of these foolish and self-seeking sycophants that the new king had chosen to surround himself with. His ego lapped up their words as a thirsty camel laps water in a desert oasis. The result – the nation was torn asunder, exactly as God had said He would do to it.

Here is how I see this – there was a growing and deep resentment in the land of Israel among those who bore the burden of the expense of maintaining the society. These same people were oppressed by those in authority, the very ones who should have understood that their role was not to lord it over their citizens but to serve them as wise, thoughtful and far-seeing leaders.

This resentment continued to build and to fester, like some sort of foul wound, under many years of continued abuse. At some point this resentment gave way to two simultaneous emotions – despair and rage.

Despair,  that their miserable situation would never change and Rage, when the long years of abuse had done to them what it inevitably does to all who are crushed under the weight of continuous intolerable injustices. Yet, the people,  daring to hope against all hope that their condition might perhaps, finally, be amerliorated, approached their new king in one last final desperate plea that reason would prevail.

Alas, it did not and the fiery passions that had been smoldering for so long finally ignited with a flame that burst forth in a fury that could no longer be contained. The nation split asunder with the words of the departing people clearly articulating what was in their hearts:

“What do we any longer have in common with this king and with his subjects? He cares nothing for us nor for the depth of the burdens that we are now forced to endure in order to support his trappings and his grandiose dreams.  We have no interest whatsoever in the house of the son of Jesse nor do we any longer care to be numbered in that house. Let us go to our own way and let us be ruled by a man who at least understands our plight”.

Fourthly and finally – the nation was torn apart and was never again made whole.

America – be warned – the division proceeded from the will of the Most High but the causes were the passions of men whose liberty had been trampled upon by a young, foolish, inexperienced and arrogant king disdainful of sound wisdom and intent upon having his own way, the consequences of which be damned.