After a wild night that saw crude drop all the way to $76, the S&P has now rallied about 50 points and brought everything along with it except, of course, the PMs.
Before we get started, a caveat. If you come to this site expecting me to tell you exactly what is going to happen in the short-term metals trade, I suggest you leave now. NO ONE can do that in these unprecedented times. I'm trying my best but, with no history upon which to base opinion, the job is nearly impossible. Knowing that, I built this site so that a visitor can easily glean knowledge from the experience documented within. Check the forums. Visit the chatroom. You will find all kinds of diverse and wise opinions there. You can measure the potential "worthiness" of the opinion by the cumulative number of "hat tips" the poster has received over the past two months. As I stated Sunday, no one can predict 24-48 hour moves in the PMs at this point. What I do know, however, is that the metals will be higher a month from now, three months from now and six months from now. Trade if you must but your best strategy is still, and will always be, to buy physical and take delivery.
Onto the trade. After reaching 1782.50 overnight, gold has come off by about $50. Holy cow! That's enough to keep your stools loose! Santa has told you to expect unprecedented volatility and you are seeing some of that. For today, do not be surprised if gold goes even lower. I could see it reaching all the way down to 1720 or so but, obviously, none of the fundamentals have changed, so it could rally back just as fast. There is, however, one thing you need to keep in mind. All of this volatility almost begs the criminal CME to raise margins. Do not be surprised if it happens. As we all know from recent experience, the CME doesn't necessarily stop with one margin hike, either. IF it happens, we'll have to re-assess. Do you recall the first time the criminal C/C/C raised margins on silver back in November of last year? Silver dropped 15% in a week but the price still went on to double over the next six months and is still 30% higher even today. My point is, one margin hike is not the end of the world. Five? Well, that's another story.
With that as a segue...doesn't silver just piss you off? Not the metal so much but the The Forces of Darkness that control it. Helped along by the dopey hedgies and their WOPR machines, The Evil Empire just stands back and laughs while all of us pull our collective hair out. Market bad = silver down. Market good = silver down. You can't win. Well, we'll see about that. To me (again read the caveat that began this note), silver is poised to explode. The drop in total open interest is fantastically bullish. As of Friday night, OI was back to late May levels. This tells you two things:
1) The shakeout from $42 to here blew out all of the new longs that came into the market in July.
2) Those who are going to sell have now sold. The remaining longs will likely be resolute. Declines from here will have the effect of pressing on a spring.
I expect silver to hold the lows of last week near 37.50. If it doesn't, there should be strong support near 37. I'm a buyer. The Wicked Witch may be able to suppress price for another day, another week or another month. I don't know how long she can last and I don't really care. The fundos are overwhelmingly positive and will, eventually, win the day. Of that, you can be certain.
That's all for now. Today should be particularly exciting so hang in there and try not to let your emotions get the better of you. TF
1:00 EDT UPDATE:
Gold found a bottom this morning right about where I'd hoped it would. You can see it on the chart below. Gold bounced twice at 1722.50. Very nice. From here, watch this current range very closely. A move up through 1750 would signal a move back toward the overnight highs. A move down through 1735 will signal a retest of 1720. Silver continues to struggle from a lack of buyers. It just sucks. A move back up through 38.60 may lead to some short-covering, however, and that may be enough to generate come excitement and drive it back toward 39.50.
More later, after we hear from The Bernank and his minions. TF
p.s. I should add that I no longer have any spreads on. I am open-ended and long Sept $42 silver calls, Oct $1800 gold calls and Dec $1800 gold calls. I expect that either outcome from The Bernank is gold bullish. Fed announces some QE: gold goes up. Fed announces nothing unusual: market goes down, gold goes up.
