Each week, we prepare a selection of newsworthy events to which the current market can explained, somewhat. This week is no exception, save one difference, that being so many want to see/hear some kind of look into the prospects for the year ahead. Our look ahead starts with a rear view mirror look back at 2014. In hindsight, we began 2014 with a positive outlook, but that quickly changed into the view that 2014 could turn out to be just like 2013...no big rally. On that score, we were on point.
Before engaging in a review, we have abandoned providing any background news, this week, because for us, the most important news moving forward is found in the six charts that follow. If you are willing to accept the message the market is giving to everyone, you will understand the folly of those who opt to make price "predictions." Keep in mind, a good many of the experts with the largest followings were touting a price breakout by the end of 2014. None called for new recent lows, and if someone did, our apologies for not knowing who you are. Bottom line: predictions are a waste of time.
To the degree that new recent lows developed in 2014, we did not expect that event. This is a more forgiving "miss" because we were not advocating trading the market from the long side, on paper throughout 2014. Strong recommendations to buy physical gold and silver were a constant, on our part. While all purchases for the physical made during the year are higher than current prices, the buy recommendations were always qualified for reasons unrelated to the market trend being down.
Would we have held off recommendations to buy during 2014? In hindsight, yes, but we were not prescient enough to see lower lows by year-end. At the same time, we have zero misgivings for purchases made throughout the year just ended because the buys are made irrespective of current price and in anticipation of much higher prices at some point in the future. The purchases were not made for near-term profit, and we stated as much, each time.
China and Russia remain avid buyers of as much PM product is available. Check. Strong sales to the public remain for individual ounce coins. Check. The Obomba administration remains as the most destructive wrecking ball for much of the world, especially Iraq, Afghanistan, Libya, an attempt at Syria, and now its coup in Ukraine. Check. The US continues to demand and its subsidiary, the EU, continues to follow along with sanctions against Russia. Check. The Federal Reserve fiat "dollar" continues to lose status as the world's reserve currency. Check. Obomba continues to provoke Russia into some kind of military response in order to blame Russia for starting a war. Check.
It ain't working. There are so many stories to be told for each of the above situations, and even more compelling stories about how Russia has given the entire West and all its sanctions the "goldfinger." Credit to Putin for being the single most fighter against the elites and embarrassing them at their own [poorly played] game.
We do not know if this is a true quote, but Putin is said to have compared Obama to a pigeon playing chess against him: "He knocks over all the pieces, shits on the board, and then struts away as though he won." An apt summation.
Given the wealth of stories available, we choose to focus on the most compelling one as told by the charts. Keep in mind, when we say charts, they are a reflection of developing market activity that tells the most accurate and current story. It is not a promising one, as of the end of the year and heading into 2015, but it is reality, and to expect anything else will lead to the same disappointments of 2013 and 2014. Forget the ego-driven predictions that have all proven wrong again and again, and deal with what is.
To the monthly, we added annual and quarterly price activity. While most never look at a monthly chart, even fewer would ever look at a Quarterly or Annual chart, but they are substantive when looking at market direction. Why? It takes so much more time and effort to alter their course.
The annual shows a modestly lower close for 2014 over 2013. For this it can be said the downside momentum slowed, but there is no sign of change, yet.
After holding the 1200 area for 5 quarters, price finally gave way to the downside. As with the Annual, the range for Q4 of 2014 was relatively small, and the close was mid-range, an indication of some buying activity, even if only short covering. It has to start somewhere. Bottom line assessment is that there is no indication that the market is ready to turn around, at this point. What this means is to expect more work in the next few months, at a minimum, as price seeks a bottom where demand will take over.
The chart comment for the month gives our view at the end of Q3 which shows the value of paying attention to what the market's message is as determined by reading the charts.
Most do not like to hear news that is not supportive of what they want to see happen. We are just as eager to want to see a strong rally, but those expectations are contrary to what the market is advertising. Consider just viewing the facts, as presented on the weekly, and then decide if it makes sense to expect a change in trend any time soon?
For review, the concept behind Bearish Spacing is when a swing high rally fails to reach the low of the last swing decline. It leaves a space, as shown by the two horizontal lines. What this means is sellers were sufficiently confident that lower prices would follow that they di not wait to see how the market would retest the last swing low. Obviously, it has a bearish connotation that should not be ignored.
The series of LHs, and another LL is a text-book example of a down trend. When you consider just these observable, undisputable facts, the reality of what to expect for the near term future cannot be in doubt, and it should put into perspective any "bullish" analysis as being significantly uninformed and very misleading.
When you look at these charts, you can better understand how all of the current event stories are not what is driving the market, a concept many find hard to accept.
After declining from the last swing high to a recent low in just 13 TDs [Trading Days], the question to ask yourself is, how is the market responding? Well, 21 TDs later, 50% longer than it took to decline, price turned back lower. Is that a strong reaction or a weak one? When you ask these simple questions about what the market is doing, you actually get an immediate and accurate response. Price is struggling, and this is to be expected of a market in a down trend.
37 TDs after the last swing low, how is price responding? It is now only at the half-way mark and even lower than the 21 TD rally. The market message is very clear for those willing to observe what is.
The silver market has a lot of work to do before any kind of prospective turnaround can occur. Does it matter how great a shortage there may be for physical silver, for how great the demand is for this metal? Not according to what these charts are saying. Before this market can go up, it has to stop going down. Can it be any simpler, and can you see how relying on shortage statistics, et al, can be very misleading, at least as to timing?
Markets do not lie, and opinions do not matter.
Same as for gold. Second verse same as the first.
If you look at the Quarterly chart for silver above, prior to the last two Qrtly bars, price was unable to rally away from support. Axiom: weak rallies lead to lower prices. You see a similar price activity situation on the daily chart with price not rallying away from the 15.50 area. It may hold, we are not saying it cannot. When considering what price is likely to do from a probability perspective, it is more likely to give way, especially when viewed in light of the trend. It is just common sense.
Is this all disheartening? It should if one is willing to deal with what the market has to say and ignore any "expert advice" to the contrary. The reality of the underlying fundamentals will eventually prevail, and if only half of them are real, gold and silver will go to higher levels than ever seen previously. The market is simply saying to be patient.
We are as bullish on the potential of both of these markets as most. However, we are realists with the highest regard for what the market says and no one else. Expect more of the same for 2015, at least to start, until there is evidence of a market turn. For now, there is none.
