Commodity Trade Mantra
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Gold and Silver Technical Analysis – Painting a Masterpiece

Gold and Silver Technical Analysis - Painting a Masterpiece

Gold and Silver Technical Analysis – Painting a Masterpiece

Technical analysis will always have a place in the speculative marketplace. Its function may not be reading tea leaves, but its connection to fundamentals is about as useful as the modern day consumer price index.

That limitation, combined with the allure of speculation, makes technical analysis a tool for exploitation by those who have the ability to “paint the tape”.

Technical Analysis

Technical, the veritable tail wagging the dog of asset analysis, is meant to establish the likely direction of a market so that traders can position themselves accordingly. A dizzying array of tools is employed for technical analysis, ranging from moving averages to complex chart patterns and statistical patterns (used to identify price direction and momentum).

Confirmation of accuracy can often be made in retrospect and in a sort of absurd circular causality. It has become a place to go for more information in markets that make less and less rational sense.

Ultimately, its visibility and accessibility fuels the fires of uncertainty for the non-trading value investor – but especially for typical gold and silver investors.

Price Manipulation

Gold and silver are manipulated. The suppression of prices will probably go on until the COMEX or the paper and physical market completely separate.  There is no interest from ANY big player in stopping this game. The West wants to keep it going as long as possible. The East wants to keep buying at artificial prices as long as possible.

The Chinese know that eventually, to challenge the reserve status, they will have to peg their currency to gold, but ONLY at time zero or in other words – at the start.

While technical analysis make appear relevant for the long term, or in retrospect because of price manipulation, short to medium term technical indicators are meaningless for long term investors.

HFT and the Rise of The Bots

Upwards of seventy percent of all equity trade volume is run in “dark pools” (or off exchange) by high frequency ‘trading’ algorithms.  This is the same system that caused the flash crash in May 2010; the same programs that cause hundreds on mini crashes each day.

Many of these programs are (also) privileged to have first ‘look’ at trades before they execute.

Why do you think it’s so cheap to day trade?   

Or, they initiate spoof trades meant to move other bots in one direction or another. And price discovery based on any semblance of fundamentals is long dead. A regulator could be placed in the lap of each one of the traders pushing the buttons and they would not have a clue.

With the absence of a market-maker or someone willing to take the other side of a trade in the name of liquidity, these markets are by definition fragile to violent market-breaking extremes.

The existence of large position allows the big players (the silver and gold bullion banks) to move the market any way they decide by manipulating the price, but also by creating a desired technical pattern to further move trading based on how they see fit.

Somewhat analogous to an artist’s interpretation of the world – the bias is usually clear if one bothered to look below the surface.

Technical analysis and chart interpretation are useful for professional traders and amateur gamblers, but worthless in a market where fundamentals are buried and where massively powerful players control the action and paint the tape.

Gold and Silver – The Wheels are Turning and You Can’t Slow Down

We are aboard a speeding train that cannot speed up – neither can it slow down – due to fiat, default, and what will be remembered as the greatest credit fiasco in history. And the road is ending just up ahead.

You can’t go back and you can’t stand still…

Speed is a 1994 American action-thriller movie directed by Jan de Bont. The film stars Keanu Reeves, Dennis Hopper, Sandra Bullock and Jeff Daniels. The movie hinges on a bus rigged with explosives that will be armed if the bus exceeds 50 miles per hour. The explosives will detonate if the bus falls below that speed or if an attempt is made to offload the passengers.

In many ways, this is a parallel to the financial system.

Absent real or natural (non-inflationary) growth, the financial elite are following a bastardized form of Keynesian economics, in which stimulus (more debt) can lead to growth. What we’ve actually seen is very little growth in the wake of unprecedented balance sheet expansion or outright money printing.

While the mechanisms (quantitative easing) seem complex, we should never mistake complexity for confidence or a euphemism for reality (or in this case, money printing).

If they listened to the loudest cheerleaders, we would have careened out of control or triggered the inflationary bomb sooner.

Whether it came from Chinese dumping or higher interest rates pushing banks back into the private lending market does not matter. They are tied together anyway.

More and more debt-based fiat is needed to keep the system alive. Any slowing will crash markets while increasing the current rate of stimulus, which will very likely trigger the confidence end-game.

Lehman 2.0

It is important to separate the economy from the financial system. Nonetheless, they are fatally intertwined. Academia and most modern economic analysis are unable to perceive this flaw, given the massive expansion of finance and credit over the last few decades.

Solvency now depends largely on the stock and flow of credit and good collateral underlying.  Without the fuel from collateral (a promise) rates rise, credit slows, and the risk of derivative melt-down increases.

However, if the fuel is removed too quickly, detonation occurs among artificially inflated assets. This situation potentially further distorts growth and chokes off any remaining tax revenue. At this point, the Fed would be called in with fire hoses to keep the government running; thereby blow up all asset prices as a result.

Non-linear system

Unfortunately, it is even more precarious because the systems that depend on the flow of free money are exponentially tied once triggered in either direction.

As the Fed continues to compete for REPO market collateral through its ongoing bond-buying spree, short-terms rates will rise. This will result in a significant slowdown in credit.

A credit freeze would trigger defaults along a daisy chain of over-the-counter, unregulated derivative transactions that break the back of whatever confidence is left in the system.

Economies are living systems

However distorted by finance, the basic foundation of commerce is a natural phenomenon  which makes it nearly impossible to control. If you are not growing or evolving, you are dying.

The time to prepare is not only now, but always. Same applies. Preparation is accumulation, and while you cannot “eat” precious metals, the basic premise is easy enough to understand. Those lucky enough to experience the physical weight of wealth and its responsibility understand the broader, more abstract implications.


Courtesy: Dr. Jeffrey Lewis

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