GOLD AND SILVER MASSACRE? by Ceri Shepherd www.trendinvestor.info April 21, 2004
Simple answer, not really; more like a major correction in an ongoing and developing bull market. We have seen the same old pattern in Gold many times before where it extends and then pulls back to its 200MA. With regards to Silver it was already very extended as Jim Puplava stated a few weeks back, “The silver chart looks like Edmund Hillary climbing Everest,” and was therefore probably due a large correction. If we take the notion that a price is extended when it is 10% to 15% away from its 200MA--today Silver is trading at $6.56--and its 200MA is at $5.81 the price is still 12.90% away from its 200MA, which means that it can still correct downwards from here, and yet still be regarded as being in a primary and healthy bull market. Gold today is trading at $393.40 and its 200MA is at $390.64. We would humbly suggest that Gold at present represents a screaming and fabulous buy.
I believe very strongly that most people get beat up in the markets because they think very short term. They then end up taking positions based on short term signals, with too much margin, too tight stops, and then wonder why they are constantly whipsawed or stopped out of trades, or their account is eaten up with commissions, slippage and spreads. Have you noticed the margin offered by some of the FOREX brokers? Now up to 200 to 1!! Using all this margin is as safe as being a passenger in a kamikaze flight back in 1945. I won’t even mention technical analysis paralysis. “The Fibbonaci retracement level does not agree with slow stochastic and there is major MACD divergence, and yet Parabolic SAR is saying short but the Chaikin Money Flow is saying long; and what about GANN or Elliot Waves? I look at the hourly chart that is completely different to the daily, which is very different to the weekly. What do I do? HELP!!!
Now relax a little, put the coffee on, and let’s get away from all this frenetic Wall Street induced short term trading. Translation = simply hoping to make some money paddling about in the market noise. Let’s instead take a quick look at the Gold weekly chart for the last 2.5 years. Personally we rarely look at daily charts preferring weeklies and monthlies. Let’s assume that you are a newbie trader and you know absolutely nothing about any market, but you decide to buy Gold in February 2003 at its very peak of about $385 per ounce based on the sound fundamental principle that you like the colour, and it is shiny, and your friend has a big medallion made of the stuff .You have made your trade and you are very patient DESPITE choosing the single worst time to buy gold during the whole of 2003. I have good news: YOU HAVE MADE A PROFIT Chart in here at http://www.financialsense.com/fsu/editorials/shepherd/04/0421.html
At www.trendinvestor.info we trade a very simple, mechanical long term trend following system long and short that would have turned $50,000 on January 1st 1995 into $79,555,530 by March 31st 2004 using conservative margin. It has also never had a single losing year and only made 3 trades in 9.5 years. It is a broker’s worst nightmare!! Why stress yourself out? Instead, let the 200MA do the work.
Some quotes regarding long term market thinking from the master Jesse Livermore.
“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!
“The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
“They say you never grow poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.”
One for the short-term traders!
“The big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend.”
My take on the current situation is that it looks very likely, although no definite confirmations yet, that the stock market could now rollover and resume its long term primary bear market trend.
It also looks like the Bond market has topped and the dollar is finding resistance at its 200MA and will therefore probably be turned back onto its long term downward trend.
It is my opinion that the Gold and Silver shorts cartel have URGENTLY engineered this sell off so that they can cover at least some of there shorts as time is very much against them. They have shaken the Gold and Silver tree hard to watch all the weak hands fall out onto the floor and then they can cover. The COT reports should be very interesting these next few weeks.
The shorts know full well that the Gold and Silver markets are very small. It only takes a small amount of money fleeing falling Stock and Bond markets to find a home in Gold and Silver for the prices to really skyrocket. We could then easily end up with a 1999 internet stock scenario where prices simply feed on themselves in a mania, which is a very disastrous situation if you are heavily short Gold and Silver.
When the shorts/cartel have to try and cover their massive short positions in Silver, and give the Gold back to the central banks, this should be the rocket fuel that ignites the market. THEY HAVE GOT TO BUY. Take Silver as an example. The commercials are as of the last COT report, 94,907 contracts short Silver, each contract is 5000 ounces, so that is 474,535,000 ounces of silver SHORT that at some point has to be covered. As of yesterday the NYMEX has 50,997,814 ounces of silver ready to deliver. This is a mismatch of nearly 10 to 1. If the market starts to move up sharply again, then I hope the commercials have a lot of silver bars safely hidden under the bed ready to deliver. They are going to need them.
Remember in a bull market simply identified by the 200 day MA going up, you buy weakness and you sell strength. We are in a bull market and at the moment Gold is very weak and Silver is also weak, so what are we going to do? If you want some more reassurance go and have a look at some old NASDAQ charts for 95, 96, 97 and 98. There were plenty of periods just like this.
