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Michael Noonan

Michael Noonan

Michael Noonan is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior,…

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Gold And Silver - No Ending Action, But End May Be Near

If the end is not near, it is certainly nearer. We are not calling for an end, for that is up to the market. All we, or anyone can do is observe developing market activity and make a determination as to when a trend is changing. The market always provides that information, and quite accurately as to timing, so there is no need to guess when that time might be. By patiently waiting, there is no risk in getting in too soon. The market is cluttered with people and large losses that tried to "beat the market" by getting in too soon, anticipating a change that has not yet developed.

There is a decided absence of trend lines on the following charts. Few to none are needed. The "story" as told by the market has best been seen in the past few weeks. Price is at support in silver, and at/near support in gold. Since the market highs in 2011, no one has accurately called for a bottom in either market. The best that can be said is that we are nearer to a bottom than previously. That may seem like stating the obvious, but we have been advocating all to stay away from the long side of the paper PMs for the past few years until a bottom has been confirmed, and there were several periods of time when that did not seem so obvious to many.

To date, there has been no bottom confirmed.

The logic stated in the following charts should make that clear[er].

For the past several months, we have indicated that the fiat "dollar" should continue higher, and it has. The reasoning was both simple and obvious. Given the extent of the rally, even just since 2014, the sideways "correction" during 2015 did not retrace any lower than the chart shows. The "correction" lower was thus weak, and weak corrections almost always lead to higher prices.

For now, as with the metals, we need to see some form of ending action to this ongoing rally before a change in trend can occur.

US Dollar Index Monthly Chart

We said few lines were needed, and the only reason for drawing the two horizontal lines of support was to make it easier for the eye to see why support has been identified as it has. The fact that gold has made another low puts it closer to reaching a lower downward resolve. When might that be? As always, the market will be the final arbiter of when a bottom has occurred.

How many times have you read that gold and silver are about to explode higher to the upside? Those making such brash "predictions" fail to appreciate or understand the power of a trend. The market does not suffer fools with egos.

There is a point worth making here. For as long as you understand the concept of a trend, and very often one can see the apparent trend just by eye, anytime you hear or read that a trade direction is being recommended, always take a moment and look to see if the recommendation is in harmony with the established trend. If it is not, be very wary of the trade. Of course, there are times contra-trend trades are recommended, but they should be acknowledged as such.

Gold Monthly Chart

One does not need any support/resistance lines, overbought/oversold conditions, or any other such mechanical aid to determine the obvious. The trend remains down, and no apologies for the repetition of observing the trend because so many have been too impatient to follow this most important vital guide.

Our read of the last three bars on the chart shows an inability for additional downside follow through after EDM leading to the current low. This can be a critical piece of information that could lead to a bottoming process. The emphasis is on the word "process" for tops and bottoms usually take time to develop and then reverse.

It bears repeating, before the market can go higher, it has to stop going lower. It can take a few weeks or 6 months, or more, so one needs to let a bottom develop before making any commitment to the long side of trading in paper contracts.

The purchase of physical gold and silver is still a go, and it may be generations before current prices are revisited, if ever.

Gold Weekly Chart

The sale of 18,000 contracts last Friday raises many questions. Who would be that irresponsible to dump such a large amount after 6 years of decline, and who has the wherewithal to handle such large numbers? The Fed immediately comes to mind. When playing with imaginary fiat, created out of thin air and without having to be accountable, one can sell any amount at any time. Rules do not apply to the Fed. They may not have the gold, but they still make/break the rules at will.

Gold Daily Chart

Once again, the horizontal lines are drawn so the eye can see where past lows are carried forward to the present as potential support levels. The 13.855 price on the right of the chart is the current low from last week and not related to the line above it. 12.48 is the next target for support should none enter beforehand.

Silver Monthly Chart

While the last 3 weeks of trading in silver can potentially be viewed as positive, as discussed on the chart, potential is only potential unless and until confirmed by ongoing market activity. Never lose site of the fact that anything can happen in the markets, and more EDM activity can enter and carry price lower with impunity. That does not appear likely, but any analysis can be proven wrong or untimely because market always gets the final say.

Silver Weekly Chart

Not a lot can be added, or need be added to the obvious: the market is seeking to uncover demand that will lead to the bottoming process so many have been anticipating for the past few years. It will come not a day sooner than when the market determines.

Silver Daily Chart

 

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