Yesterday, at the announcement of the Swiss, a number of things happened which should have happened, IMHO, and a number of things happened which shouldn't have.
The EUR/CHF cross did as it should, the franc weakened against the EUR, the demominator shrunk relationally to the numerator.
From the CHF/JPY cross, the Yen strengthened against the Franc.
I'd expect as the Yen and EUR strengthened, and them having an inverse relationship to the dollar, that the dollar should have weakened? The dollar didn't weaken it strengthened yesterday. How could that happen? Well, it seems gold started collapsing at the exactly the same time the currency's started their moves. The only place it seems the dollar strength could come from, and did, was from people vacating gold and running to the dollar.
That doesn't make any sense unless the Govmint's decided to coordinate and slap gold back. This theory sounds strong to me because a currency war, which is what the Swiss further signaled along with numerous other gov's recently, should make gold shine. The gov't would have to take some shine out of the metal for fear a stampeded towards metals would occur.
If the Swiss gov was going to weaken it's currency, and gold and the Franc were the only two safe havens around at the time, it stands to reason, if one safe haven is removed from the picture the other should stand to benefit - gold.
It seems the developments, so far, signal incredible strength in gold. If the gov't intended to take gold down, it needed to take it down through the 1820 area but gold is right there, right now. This is the strongest time of year for gold. Everything i read suggests people are taking delivery of gold or seeking allocated allotments from a investment perspective.
It seems impossible to me, with those two things happening, that gold and silver can fall any further than here.
Stranger things have happened. Interested in what you guys think
Thanks for the kind words Unleashed. I didn't find anything you said offensive at all.
The debate might be a moot point because at the end of the day, a technician like me is supposed to just follow the charts due to the fact no one really knows when fundamentals will play out.
Today, those brokerage houses continued buying and as a result I held on and bought more with them. two other houses came in and bought small amounts of about $4 million and $2 million each.
As I was starting to second guess myself and wondering if I should have gone to cash, SLW and silver pulled a reversal upward when silver should have targetted 38.05. Gold similarly came within a few dollars of a critical price point and reversed upward too.
A day does not make a trend but, it certainly starts one and so we wait and watch tomorrow for follow-through. The candle on the slw chart signifies exhaustion selling was combated and pushed aside. There should be some type of gap up tomorrow.
CHEM, my apologizes. You are absolutely correct, gold does trade on fundamentals just like all other commodities do. I just don't believe it is at this moment in time.
As you stated recently (Chem) >>"I'm trying to search the charts for clues and it is the most confusing I've ever seen them.
Add to this the dollar goes up, gold and silver go down.
The goes down, gold and silver go down.
Something different is happening and I'm not sure what it is."<<
Back to my previous statement >>"I don't, it's all about fear of the unknown, take away the fear and replace it with certainty and gold will collapse."<<
"But because our commodity markets are warped and corrupted, they trade on speculation."
This appears to be what is happening now, I don't see gold totatly collapsing but I do believe a small correction is progress, until fear raises it's hideous head again. JMO.
(Chem)>>It seems a central theme of your argument is that the money supply function of the dollar can not account for gold doing what it does.<<
As you stated >>(Chem) "Something different is happening and I'm not sure what it is."
My intention was not a argument . Just conversation.
I believe we're both on the same page here, there is something strange going on in the gold and silver pits. (Refer back to the corruption statement.)
Chem, I have the utmost respect for you and your trading expertise, as you are a master technician and I enjoy reading your posts.
>You think there are fundamentals to gold pricing? I don't, it's all about fear of the unknown, take away the fear and replace it with certainty and gold will collapse.<
CHEM: I have a different opinion here. I believe absolutely there are now fundamentals to gold pricing. It is being traded as a currency and as such is driven by monetary phenomena. China will have its Shanghai gold exchange fully functional in the next couple of months and the London LME and US Comex paper instruments will be in trouble due to the preference for delivery of contracts in Asia rim.
>The world supply of silver is lower than gold. <
CHEM - I agree with you on this point, and thus the reason that for the last 7 years I've heavily traded silver and done ok with it.
It seems a central theme of your argument is that the money supply function of the dollar can not account for gold doing what it does.
Just as the USD index is a inverse function of the Yen, CAN$, Euro etc.
Think of gold as having an inverse correlation as a function of not only the dollar but of every major country in the world. Whereas the dollar index is influence by the movements of 6 or 7 currencies, gold is influenced by a couple dozen currencies.
As a small example, the franc moved dramatically upward and this would influence gold, but also the miniscule movements of the other currencies compound to influence gold just the same as the movement of just the franc.
I won't pretend to understand fully the economics of the movements but I can tell you as someone who has been trading PM's for a living for several years, gold and silver get whacked in a manner that is always suspicious. The quote of the goldman sachs trader just shows i wasn't the only one that had this thought after i witnessed it.
Goldman Sachs' head gold trader Zak Dhabalia reportedly commented on what happened to gold after swiss announcement:
The immediate aftermath was in complete contradiction to prior recent episodes of intervention and what anyone would have expected. Instead of spurring a further gold price rally on the basis that it was one of the few remaining safe haven "currencies" we saw a 50 usd collapse in minutes. The source of this flow seems hard to pin down with some speculating over whether "authorities" were concerned about the signals of an accelerating gold price and its impact on other fragile markets.
Good post gentlemen,
I wouldn't claim to know more than the analyst, but I don't agree with much of what they say.
You think there are fundamentals to gold pricing? I don't, it's all about fear of the unknown, take away the fear and replace it with certainty and gold will collapse.
Gold doesn't trade on supply/demand as it should, as most commodities should. I emphasize "should" as commodities should trade on supply/demand. But because our commodity markets are warped and corrupted, they trade on speculation.
First of all, money supply, who really knows what the money supply numbers are? Money supply in my estimate is similar to the UE and inflation numbers from the government. BS. The government has their own way of doing math, which serves their purposes.
I don't see how gold is money anymore than any other commodity. It's money because people believe it's money. If enough people believed that platinum was money, it could be money also. Please remember, gold is not in short supply. The world supply of silver is lower than gold.
Now if money supply is directly tied between the US dollar and the gold price, some assumptions don't compute. Gold is as speculative as any other commodity. If there is some direct price correlation between the dollar(money supply as they call it) and gold, then how can gold go up and down like the chart below during five days of trading?
Did the money supply move like that? I don't think so. Previous to the chart indicated, gold fell from over $1900 to $1710 in a week. Gold moves like any other commodity, speculation.
Next, how is it that gold did not change in value for more than 20 years from 1986 to 2006 even through the money supply grew?
Furthermore if what some analyst say is true, the long term US dollar should be inverse of the gold chart. However, there is little resemblance. The inverse of the US dollar chart much resembles the Euro dollar chart, not gold.
Some analyst argue that the gold price's are fixed, and that the US dollar is the asset that is changing. Perhaps, but if that is true, then it's also true for most currencies, not only the dollar.
Because the governments fear deflation more than inflation, therefore they print money.
However, eventually inflation or deflation will win out, but it will be borne out by how committed they are to devaluing the currency.
I find it interesting that the US dollar is low, but is not making new lows of late. The fed and treasury want the US dollar low, but it does not appear at this time that they want to kill the value (just yet anyway).
How can gold alone devalue the US dollar if nothing else is inflating? Oil is still 38% lower than three years ago. Homes are 35% less than 6 years ago. Some will argue that wages are going down. Correct me if I'm wrong, but right now we have less dollars chasing more goods, no?
While US debt is growing and appears out of control. The ECB will be printing money soon to support the insolvency issue, just as the US had to do. I maintain that the battle of currencies is against each other, not gold.
However, gold has no doubt been the clear winner and beneficiary of the battle.
Eventually, everyone is going to come to the conclusion that the Fed's QE policy is essentially a means to raise asset prices. Seeing as how the rich have more assets, this is in essence giving money to the rich at the expense of the poor under a Democratic president's rule. Once people get that QE means higher food and energy prices, and more are getting this every day, the QE3 and 4 ETC will be off the table. Once the U.S. dollar buys more energy and food, there will be a move from gold back into dollars in the U.S.
(estimate: 4-6 years)
In the meantime, fear is golds best friend.
Chem, good to see you back. Here's a slightly different explanation. Tell me what I'm missing.
The EUR strengthened vs. CHF as expected, but EUR weakened against the USD because people want out of the EUR with German court rulings pending, Greeks and Italians waffling on austerity agreements, Germans and Finns grumbling about bailouts, etc., etc. While the dollar may not be the safe haven it once was, it may be the least-bad currency in a lousy currency neighborhood. As bad as the U.S. may be, it is better than Europe right now. And I do mean, for now.
I don't expect that to last, and long-term I expect PMs to rise. Still, I sold 2/3 of my AGQ yesterday and will hope to buy back at a better price.
I would be interested in your thoughts on the gold/silver ratio and whether you think they will go up in tandem or diverge under the scenarios you and I are describing, since we both expect them to rise. I have been mostly dabbling in silver, but I'm thinking gold may be a cleaner play under the circumstances we expect. TIA, as always.
Per the view that you looked at, ie over the duration of the day, your observation is sound.
I was looking at a bit different view, trying to understand exactly what was happening as the bell wrung on the the Swiss news.
At 2:00 am yesterday the Euro rocketed (ie EUR/USD cross rose), the dollar tanked, and gold tanked.
That was the trigger that technically set the tone on the rest of the day.
Later as the day progressed, the Euro tanked, the dollar rose and gold continued down.
That 2:00am bushwack of gold was the unusual thing based on what the currencies did. With the US dollar falling, people went to the Euro instead of gold? huh? am I missing something. I think the govt's shut gold down at 2 am because govt can't have gold best their paper money.
Whereas the currencies changed course later in the day, gold continued down.
I think you're right on gold being the better play based solely on looking at the Au:Ag ratio. The ratio just broke above the 200 day moving average a month ago and looks to be basing for an upward move. a lot of indicators seem to confirm this except a few.
Silver currently is within a very large bull pattern. 43.37 is the impediment price toward 47.95.
I have trouble believing that gold and silver can be taken down here, and for the last several days silver showed strength relative to gold that was very encouraging despite the ratio. I feel I might be letting my emotions get in the way though.