Lots of talk today about the surging Pig and it's all piling up on the metals as brainless algos see Pig strength and mindlessly dump gold and silver. But is the rally in The Pig just beginning or almost over?
Of course, any discussion of The Pig and, by extension the POSX, must begin with a review of the components of the Dollar Index (POSX). Always remember that the POSX is simply a relative comparison of The Pig versus other fiat currency. So, when you see The Pig rallying, it is primarily a reflection of weakness in other fiat, particularly the euro. Take a look at this chart:
Notice, too, that the Japanese Yen also accounts for about 14% of the index. Recall that Abenomics has clipped over 30% of the yen's value versus The Pig in just the past seven months.
So when you hear or read all of this talk about "the strength of the dollar", you must take it all with more than one grain of salt.
Now, you know that I hold Tom Fitzpatrick of Citi in very high regard as a Technical Analyst. I want you to read this but, in this matter, I hold a differing opinion. https://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/5/17_Five_Incredibly_Important_Gold_%26_US_Dollar_Charts.html
Where Tom sees a potential breakout, I see stickiness. In fact, though the POSX does look poised to rally to and through 86, I think it's going to have a very difficult time breaking through the area around 88.
Regardless of the long-term trend, a move toward 88 on the POSX is going to keep paper metal under some serious pressure. Brainless computers and money managers will only see the "rallying dollar" and use it as rationale to sell metal. What does this mean? In all likelihood, there's a pretty good chance I'm going to have to eat that hat after all. Ugh. Gold looks almost certain to retest the lows of April 15-16 near $1320. A double bottom would be nice but it wouldn't surprise me if we overshot a bit as again there has to be a veritable cornucopia of sell stops below that level. A sell-stop-triggering spike down could reach below $1300 and why would that be significant? Because depending upon where you measure it, gold would then be very close to a perfect, 38.2% retracement of its bull market.
If we measure the bull market in gold as beginning on 1/1/01 at $272 and then peaking (for now) at $1920 in early September of 2011, then a 38.2%, Fibonacci retracement ( https://en.wikipedia.org/wiki/Fibonacci_retracement) of that move would be about $630 or a drop to near $1290.
And if gold still has a little further to drop, we should expect silver to fall a bit farther, too. To where? Who knows but it seems certain at this point that I'm going to get a chance to nibble on some yellow foam. Double ugh.
Just two other items for you to review today. First, Gene Arensberg has written a fantastic piece on the historic takedown of last month. Please take time to read and consider this forensic analysis: https://www.gotgoldreport.com/2013/05/so-much-for-position-limits-on-comex-gold.html
And Jeff Nielson has written another terrific piece that deserves your attention. This one deals with the inappropriately-named but oft-quoted "World Gold Council". Good stuff. https://www.bullionbullscanada.com/gold-commentary/26193-the-world-paper-council
This week's CoT will once again be interesting and I'll have some comments later today. For the week, gold was down $22 while its OI rose again, this time by 5,900 contracts. The silver CoT will likely continue the relatively quiet trend of last week. For the reporting week, silver was up 43¢ but its OI was up about 500. We'll know soon enough.
Have a great weekend!
TF
