• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

You Don't Mess With The Zohan

The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Thursday, September 3rd, 2009.

You Don't Mess With The Zohan is the title of a funny flick starring Adam Sandler from which I will borrow a sentiment that should apply to the breakouts in precious metals yesterday. And that is normally you don't mess with breakouts like this, however in knowing gold and silver continue to be in play via our self-serving bureaucracy / price managers, paranoid as this may sound, I wouldn't be surprised for a minute if these characters attempt to scuttle the rallies in coming weeks. After all, the dollar ($) is very oversold and susceptible to a correction higher, which is the primary source of concern here. So if it was my job to fix precious metals prices, in knowing they must be let loose at times to build up paper market related speculative excesses, what I would do is allow this to happen at a time just like this, one where it's thought prices will be held back by the natural drag of seasonal weakness in the stock market.

Of course things do not always go as planned, even for our price managing bureaucracy, witness the stock market last year, and potentially gold and silver right now. What do I mean? Well, what if stocks don't crumble in coming months? Then, with seasonal strength in precious metals on deck, it's quite possible the same speculators price managers use to boost stock markets jump on the bandwagon in knowing this, unexpectedly propelling prices higher. What's more, it should be noted that the situation pertaining to the oversold nature of the $ could fuel a 'wall of worry effect' in that many are being held back from buying gold and silver because of this, where these people will be forced to think 'something is different this time' if the rallies in precious metals prove lasting. And as some are saying then, this could be your last chance to buy gold under a $1,000, so you had better hurry.

On a more serious note, and from a fundamental perspective, with both traditional institutions and governments increasingly returning to the fold, not to mention the Fed might be forced to come clean with respect to its gold capping activities, on the surface there appears to be good reason to be bullish about prospects for precious metals, however the volatility could be spine tingling. This is because official efforts to suppress precious metals will not go away both at home and abroad, not to mention that once credit contraction in the economy gets rolling for real, which will be marked by a turn in real estate related loans, then things could get very interesting. Then, it will be instructive to see if those fleeing faltering fiat currency regimes will be enough to counter the deleveraging, not that such concerns will matter in real terms and the long run.

Be that as it may, the breakout in gold needs to run further before even the most rudimentary technical measures would signal an official 'buy signal', however it does look good in this regard, and it would look better with a two-day close outside of the triangle, which would be registered today. Of course a three-day event would be even better, especially if this involved a close over $1,000. Again, from a technical perspective, in looking at the indicator diamonds defining the trade in the chart below, with breakouts abounding apparently, one cannot deny the potential power behind this move. So four-figure resistance at $1,000 should in fact fall this time around, which will bring in a great deal of technical buying. This is why precious metals shares were up so strongly yesterday, in anticipation of this occurring. (See Figure 1)

Figure 1

As with the gold chart above, the most important observation that can be made with respect to the breakouts across the precious metals sector that occurred yesterday comes in the realization volatility, as measured by the Bollinger Band (BB) Width Indicator, is just getting rolling, and that if its to expand during a rally sequence, a profound move would unfold. Here, as you can see both above and below, breakouts in this regard (BB Indicators) have not even occurred yet, meaning the best is still on the way. We do need to see precious metals shares continuing to outperform in order to signal positive possibilities in this regard however, so watch the gold stock to gold ratios today, with the Amex Gold Bugs Index (HUI) / Gold Ratio the popular choice by most. Of course if you want intra-day action, one needs to watch the GDX / GLD Ratio. (See Figure 2)

Figure 2

As suspected in my last communication, because last year saw such dramatic moves in equities during September, the seasonal inversion that began earlier this year could extend into the extremes period this year, which could run all the way to November. This means that because of the mature state of our markets, which translated infers our markets have become gambling casinos to the nth degree, speculators will buy enough negative bets on stocks (see Figure 3 below) to provide a floor under prices until the normal seasonal weakness window has passed, leaving a great deal of liquidity in need of a home over the next few months. It's important to understand it's that dynamic operating here, which on one hand is a positive over the next two months, but on the other will also define volatility moving forward as well. It's the gamblers you see, some betting on a market crash in season, and others betting on the seasonality of precious metals not letting them down this year. (See Figure 3)

Figure 3

Source: Schaeffer Research

Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our continually improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.

And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.

Good investing all.

 

Back to homepage

Leave a comment

Leave a comment