On gold’s chart we can see that the dramatic rise yesterday on the Fed’s surprise announcement means that it is at last about to haul itself up out of the long and tedious Head-and-Shoulders bottom pattern that has been forming for many months. Breakout from this pattern will be signaled by its breaking out above the black “neckline” shown and then above the resistance level a little above that near to the late August highs centered on $1425. Once it breaks out from the base pattern it will be free to advance, but still has to contend with the strong resistance level in the $1550 area at the lower boundary of the large intermediate top area that it broke down from back in April. Volume was good on yesterday’s rally which is another positive sign.

The gold Public Opinion chart shown below makes plain that the public hold gold in low esteem at this time, which is of course bullish, as the majority are always wrong.

Reprinted with permission from Clive Maund.com.

On its 1-year chart we can see that gold had already broken out of its steep downtrend in mid-July, since which time it has been held in check by its falling 50-day moving average, which is now starting to flatten out, so that a bull Flag appears to have formed as the price retreated back along the top of the trendline that it had earlier broken above. This Flag implies another upleg, which appears to have started this morning, and this uptrend could really gain traction soon if the price breaks above the nearby resistance shown, given the huge speculative short positions that have built up and the consequent potential for massive short covering. The gap between the 50 and 200-day moving averages provides a measure of how oversold gold is. Of course, breaking above the strong resistance at the earlier major support in the $1550 area that failed back in the Spring will be a tough nut to crack, but we will have to see how gold shapes up approaching it, in order to assess the chances of an early breakout above this key level.

The Hulbert Gold Sentiment chart that we have used in the past is no longer available on www.sentimentrader.com the reason given being “Due to a request from Hulbert Financial Digest, the publishing of this chart has been temporarily suspended.” Maybe Big Money has been leaning on people – after all they wouldn’t want ordinary investors having access to information that might enable them to make decisions that turn them from habitual losers into winners. Perhaps in the future, if you want any useful charts, you will have to compile all the data yourself and make them from scratch, assuming the data itself isn’t rigged, of course. By that time I will be retired and able to laugh about it all – unless I follow Richard Russell’s example.

The latest Public Opinion chart shows that the public still hold a very low opinion of gold, and that has to be bullish.

The Rydex traders are upholding their time honored tradition of providing an excellent contrary indicator – keep up the good work lads! …

The gold seasonal chart is most encouraging as it shows that we have arrived at the most seasonally bullish time of year for gold. With the middle of August approaching it’s high time gold started rallying – and this morning it is.This positive seasonality continues through to mid – end of September.

Thus it is interesting to observe that the dollar has been rounding over gradually beneath a “Distribution Dome” on its chart, that developed following the sharp rally in mid-late 2011. While these Domes sometimes abort, that is to say the price breaks out upside from them, the only circumstance likely to cause that would be a sudden deepening of the crisis in Europe. While that is possible, the chart looks bearish at this point, especially as a bearish broadening formation or bullhorn pattern has developed on the chart in recent months. Here we should note that were the dollar to rally because of more strife in Europe, it wouldn’t stop gold from rallying – it is not generally realized that the dollar and gold sometimes rise in tandem. We should also note that if the dollar does now weaken, it is likely to be some months before the significant support in the 78 – 79 area gives way.

Meanwhile Adam Hamilton has written a timely article some weeks back highlighting the potential for a massive short squeeze in gold. While it helps to take an acid tab an hour or so before looking at his charts, he presents a convincing case, and it certainly looks like a blistering rally is not far over the horizon. This is good news for bulls, as it means that gold should have less trouble taking out the strong resistance at the April breakdown point than would otherwise be the case.

In conclusion we appear to be right on the doorstep of the next major uptrend in gold, silver and the PM sector, which promises to be really big, like the late 70’s only a lot more spectacular. Rising interest rates won’t stop it – on the contrary rising rates will feed it just as in the late 70’s because rising rates won’t attract people to bonds if their price is collapsing. Most investors will miss out on it, as usual, as a result of being burned by the preceding correction, and worries about that downtrend continuing, played up by the still negative media. They will turn up in droves many months down the road when prices will be much higher.

We have already looked at the bigger gold and silver stocks on the site, and the main leveraged ETFs. Soon we will be looking at options strategies involving the main ETFs and big stocks, designed to leverage gains from the uptrend. This is, believe or not, a much safer and more reliable way of achieving performance than dabbling in dodgy juniors, which or may not partake in the rally, and can collapse at any time, almost without warning.

While silver is on the defensive short-term there is plenty of evidence that over the medium and longer-term it is setting up for a powerful rally. COT’s and sentiment are already very bullish indeed, which means that when the turn does come, the rally is likely to be accentuated by panic short covering.

On its 6-month chart we can see how silver is being pressured lower by its falling 50-day moving average coming into play overhead, although the increasingly large gap between the 50 and 200-day moving averages is indicative of an oversold state that increasingly calls for reversal. Volume is still predominantly negative, suggesting lower prices dead ahead. After that we can expect reversal. There was a pronounced bull hammer in silver in the middle of May towards the intraday low of which there is quite strong support – silver may drop no longer than the low of this hammer.

 Chart courtesy of www.sentimentrader.com

 Chart courtesy of www.sentimentrader.com

]]> http://www.lewrockwell.com/2013/06/clive-maund/lower-silver-prices-dead-ahead/feed/ 0 http://www.lewrockwell.com/2013/05/clive-maund/parabolic-blowoff-ahead/ http://www.lewrockwell.com/2013/05/clive-maund/parabolic-blowoff-ahead/#comments Wed, 22 May 2013 14:53:28 +0000 Clive Maund http://www.lewrockwell.com/?post_type=article&p=151737 Continue reading →]]>

For those of you who are short of time and are accustomed to scrolling down to the bottom of an article to read its conclusions I’m going to save you the trouble by putting the conclusions at the start: the broad US stockmarkets are approaching a parabolic blowoff top and should be sold, and gold and silver are bottoming and should be bought. If you have fallen to the floor laughing at this suggestion it is a sign that you have been brainwashed by The Ministry of Disinformation and you are warned to pull yourself together and take the time to calmly consider the hard facts presented below – otherwise you won’t be laughing at all in a few months when YOU will be lying face down in the dirt with tire tracks across your back.

The Barons of Fiat have done an excellent job of discrediting gold and silver and smashing them back down in recent months. They are doubtless crying with laughter at the thought of the distressed “Little Guy” with his modest hoard of coins and featherweight bars, suffering from depression as a result of their actions and turning negative on the sector. The Little Guy’s noble effort to support gold and silver prices by buying a few coins is no match for Big Money’s financial chicanery on the paper market, and when push comes to shove, as happened a month ago, the dumping of a couple of truckloads of gold bars onto the market.

For the Barons of Fiat continually rising gold and silver prices are an embarrassment and may cause people to seriously question the entire fiat system. They don’t want that of course, hence the recent organized takedown, which Big Money even profited from handsomely, by first going short big time, and then getting the media, which they control, to run stories discrediting gold and silver. So it’s nice of Goldman Sachs to tell us that they have now covered their gold short position at a handsome profit.

The underlying drivers for the gold and silver bullmarket remain in place of course, which are unrestrained global money supply growth and credit growth, which are fuelling big inflation in various countries, even if this is disguised by massaged government statistics. This implies that the recent gold and silver takedown is throwing up a major buying opportunity, even if the basing phase continues for a while longer. So let’s now move on to see what the latest charts for gold, and for its COTs and various sentiment indicators are telling us about the internal dynamics of the sector at this point.

In the last update, posted on 28th April, we stated that gold’s relief rally had peaked and that it would turn back down and retreat back towards it April panic lows. The David vs Goliath stories about widespread buying of physical gold around the world enabled Big Money to squeeze a little more blood out of the Little Guy, who jumped back in prematurely, just as we expected. On the latest 9-month gold chart we can see that gold has now reacted back towards its April panic lows as predicted, and our challenge now is to determine whether it will continue to drop to substantially lower levels or whether it will turn up here, or soon, and in our quest we will be greatly assisted by pertinent data on the current COT structure and various sentiment indicators.

Returning to consideration of the 9-month chart we see that gold has dropped back quite hard, but in a fairly steady manner, over the past week or so towards its April panic lows. This alone implies that there is a fair chance that the support at these lows will hold, or that if it is breached, it won’t be by much. As we will soon see, COTs and sentiment indicators strongly suggest that gold is now in a basing process, and that if it does drop further, it won’t be by much.

While gold admittedly doesn’t look too good on its 8-year chart, as the high volume breakdown from the top area implies that it could drop further towards strong support approaching $1000, this outcome does not look likely given the COT and sentiment extremes that we are already seeing, and the explosion of negativity towards the metal in the mainstream media, all of which are indicating that we are at or close to a major bottom NOW.

The COT chart below shows that Commercial short and Large Spec long positions have dropped to their lowest level by far for the life of this chart. This is bullish. Small Specs are out completely, which is another positive sign.

Hulbert Gold Sentiment is at its lowest reading for years. This is a contrarian indicator that is strongly bullish.

The Public Opinion chart for gold below shows that bullishness towards gold is at its lowest level for years, which is another contrarian bullish indication.

The Rydex Fund traders, who are renowned for their incompetence, also furnish us with still more proof that gold is at or close to a major low, as the chart for their holdings below shows their Precious Metals assets at a very low level.

One reason for gold going into the dumpster over the past week or so has been the strength in the dollar. As we can see on the latest 6-month chart for the dollar below, it has broken out upside from its recent Dome formation and gone on a tear, but it is now overbought.

The dollar’s latest COT chart shows that the Commercials now have a substantial short position, and the Large Specs a substantial long position in the dollar, while the Small Specs are record long the dollar, for recent years anyway, and this is viewed as a fairly sure sign that we are at, or close to, a top.

Meanwhile Public Opinion on the dollar is close to its normal upside limit, also making it highly likely that the dollar will top out soon.

Needless to say, if the dollar tops out shortly, gold and silver are likely to take off higher again, and now we are a good point for them to do so.

Now, we are aware that if the parabolic acceleration in the broad market intensifies short-term, gold could remain depressed and perhaps drop some more, and this fits with gold’s seasonals. The seasonal chart below shows that gold is seasonally weak in May and June, but starts to perk up in July before entering its seasonally strongest time of the year in August and September. So the base building process in gold may continue for a while yet, during which gold and gold ETFs may be accumulated on weakness.

We will shortly be examining the broad US stockmarket on the site in some detail, with reference to various technical indicators, in an article which will be simply and succinctly titled “FOOLS!!!!”

]]> http://www.lewrockwell.com/2013/05/clive-maund/parabolic-blowoff-ahead/feed/ 0 http://www.lewrockwell.com/2013/04/clive-maund/big-moneys-gold-rape-and-pillage-operation/ http://www.lewrockwell.com/2013/04/clive-maund/big-moneys-gold-rape-and-pillage-operation/#comments Tue, 16 Apr 2013 10:54:13 +0000 Clive Maund http://archive.lewrockwell.com/maund/maund17.1.html Continue reading →]]>

A number of subscribers have written in to me asking how I knew to load up with Puts on Thursday ahead of Friday’s massive smash in the gold market. The answer to that is that when you have been watching markets and price movements for as long as I have and understand how Big Money thinks and operates, you develop a “sixth sense” for the kind of stunts they can pull.We have pointed out repeatedly in the recent past the immense importance of the strong and clearly defined support levels for gold and silver at about $1500 – $1530 and $26 respectively, which have generated several significant reversals over the past 18 months or so. We also made clear that if we know how important these support levels are (were) then for sure Big Money does, and that they would plot to crash these support levels and trigger waves of stops if it was in their interests to do so.

Now that they have done so, let’s consider why – what is their motive? There has been a big drawdown in physical gold warehouse stocks at the Comex this year, and a really dramatic drawdown at the J P Morgan Chase depository. If, as a result of this, stocks are too low to meet deliveries, gold would have to be bought in the open market, driving prices sharply higher, and they for sure don’t want that now that their stocks are so low. So the game is to smash the gold price so that they can replenish their stocks on the cheap – and they are not short of friends in high places who can assist them in this endeavor.

The first “smoke signal” came over a week ago with some members of the Fed purported making rumbling noises about reining in QE, as reported in the latest Minutes. That served to get the gold market nervous. Then there were widely circulated reports last week about the “tiny island”, Cyprus, having to sell 400 million euros worth of gold on to the market – not bad for a “tiny island” – which, although unfounded, depressed and weakened gold further. By the way Cyprus is not tiny, it is BIG, and I invite any more ignorant or sloppy commentators referring to Cyprus as a “tiny island” to come with me to the island, where I will gladly drop you off at a remote location with a decent pair of walking boots, and then relax in the capital and see how long it takes you to join me on foot, no buses or hitchhiking permitted.

Finally, just by coincidence you understand, after waves of selling in New York during the day on Friday had softened gold up nicely and brought it down close to its critical support, the London physical market locked up on Friday afternoon. Some investors entertain the romantic notion that this physical market is like an old fashioned cattle auction, with a guy in a tweed jacket and a hat spouting 200 words a minute of auctioneers jargon. It is not. It is computerized and the computers froze on Friday shutting out would be sellers who then went into blind panic, entering the futures market to hedge or short. This tipped the market into a vertical plunge that completed the job of crashing the key support level.

So what now? We can expect a wave a margin calls to go out over the weekend that could crash the market further next week, possibly causing the vertical plunge that began on Friday to continue, perhaps for several days. The ball may be kicked further downhill by Big Money’s media pals having a field day over the weekend proclaiming the death of the gold bullmarket. Once all the stops in the $1500 area and beneath have been triggered, it will take a lot of pressure off Big Money and the Comex to meet deliveries – and it will also enable them to replenish inventories at knockdown prices. This is why we were in favor of Puts rather than being stopped out, and thus becoming victims of the trap that they had set.

So, is the gold bullmarket over? Only if the Fed and other Central Banks choke off QE, and there is no sign of that happening, nor is it logical for them to do so as it would trigger a devastating deflationary implosion. The bull case for gold remains intact, as a trader friend in California put it this weekend –

“Did gold fall off the cliff because the dollar index ripped higher? NO! Did Uncle Ben Bernanke say they were stopping the $85 billion + QE immediately? NO! Has physical gold become more abundant than any time in the recent past? NO! Are the world’s central banks stopping their counterfeiting operations by devaluing their currency by stopping the printing presses? NO! It’s quite the opposite, Japan, U.S., and the EU are increasing the money supply.

Things to look at that are happening. Are Russia, China, and India amongst other nations still buying huge amounts of gold? YES! Is QE going to continue? YES! They cannot stop it now, because they’ll have a HUGE deflationary episodes which those in power do not want. It would be what is needed to reset the scales of the financial system and debts around the globe, but would mean huge financial losses to the powers that be. Silver isn’t becoming more abundant, it is rarer than gold, so why is it around $26 bucks per ounce?

As we look at the charts on the precious metals, just remember, not all is what it seems. In chess you disguise your true intentions by moving the pieces around the board, setting them up for the attack; better deception skills you have, the more likely you’ll win the game. Think 2-3 moves ahead of your opponent, and you’ll always come out a winner.”

Apart from these correct observations by my friend, COTs and sentiment for gold and especially silver remain wildly bullish, which is why we have maintained a bullish stance overall in recent weeks, whilst remaining fully aware of the possibility of a Big Money Viking style “rape and pillage” operation such as we are now seeing. Having seen it coming in the nick of time, we are hidden behind the stockade waiting and watching for when it’s safe to come out again. The Big Money individuals behind this operation are doubtless cracking open the champagne this weekend and laughing gleefully at all the poor slobs faced with margin calls this weekend.

So, we can fairly conclude that Big Money has organized this raid to trigger stops and run people out of their positions, in order that they can ease pressure on deliveries and replenish their stocks at low prices. This means that after a possible panic phase next week caused by margin call liquidation, we can look forward to stabilization, followed by a strong recovery.

Now let’s go swiftly through the charts to see what happened.

On its 3-year chart we can see that gold spectacularly crashed the support at the bottom of its major trading range on Friday, in so doing confirming the range as a top, not a period of consolidation, as we had earlier reasonably suspected. Luckily we well aware of this possibility and had taken due precautions. The high volume on the breakdown is bearish, as is the failure of the channel shown. Gold must quickly get back above the breakdown point to forestall a severe decline – and there is little chance now of that happening given the change in psychology that this breakdown has engendered.

 

The 7-year chart for gold reveals the true seriousness of the situation, as in addition to breaking down below key support, gold has at the same time broken down from its long-term uptrend channel. We had expected this to generate another upleg. Of particular note is that there is no strong support until the $1000 level is approached and our worst case scenario is now a near vertical bloodbath decline towards this major support, which, should it occur, would be a signal to close out Puts etc and go aggressively long.

 

The latest COTs for gold are now quite bullish, with Commercial short positions having been scaled back substantially and Large Spec long positions having moderated substantially. Should gold now suffer a severe decline, these positions can be expected to get a lot more extreme, and should assist us in calling the bottom.

 

The dollar had little or rather no role to play in gold’s breakdown, as we can see on its 6-month chart. It appears to be topping out beneath a “Distribution Dome”, a view which is supported by its latest COT chart. Actually it has dropped away from its Dome rather quickly towards its rising 50-day moving average, so it is entitled to minor relief rally soon before it heads lower.

 

The latest dollar COT chart is strongly bearish, with the Commercials having gone heavily short and the Large Specs heavily long, no doubt assisted in their decision making process by the mainstream media.

 

We will end with a crumb of comfort for bulls. Gold stock sentiment is at its lowest level ever, apart from a brief moment at the nadir of the 2008 crash. It is at 0 and the great news is that it can’t go lower than that. Sadly, however, this doesn’t mean that stocks can’t drop more. They will if gold and silver crash, but at least it tells us that we should be on the lookout for a bottom occurring before too much lower.

 

Recently by Clive Maund: Gold Market Update 2/24/13

      A number of subscribers have written in to me asking how I knew to load up with Puts on Thursday ahead of Friday's massive smash in the gold market. The answer to that is that when you have been watching markets and price movements for as long as I have and understand how Big Money thinks and operates, you develop a u201Csixth senseu201D for the kind of stunts they can pull.

We have pointed out repeatedly in the recent past the immense importance of the strong and clearly defined support levels for gold and silver at about $1500 – $1530 and $26 respectively, which have generated several significant reversals over the past 18 months or so. We also made clear that if we know how important these support levels are (were) then for sure Big Money does, and that they would plot to crash these support levels and trigger waves of stops if it was in their interests to do so.

Now that they have done so, let's consider why — what is their motive? There has been a big drawdown in physical gold warehouse stocks at the Comex this year, and a really dramatic drawdown at the J P Morgan Chase depository. If, as a result of this, stocks are too low to meet deliveries, gold would have to be bought in the open market, driving prices sharply higher, and they for sure don't want that now that their stocks are so low. So the game is to smash the gold price so that they can replenish their stocks on the cheap — and they are not short of friends in high places who can assist them in this endeavor.

The first u201Csmoke signalu201D came over a week ago with some members of the Fed purported making rumbling noises about reining in QE, as reported in the latest Minutes. That served to get the gold market nervous. Then there were widely circulated reports last week about the u201Ctiny islandu201D, Cyprus, having to sell 400 million euros worth of gold on to the market — not bad for a u201Ctiny islandu201D – which, although unfounded, depressed and weakened gold further. By the way Cyprus is not tiny, it is BIG, and I invite any more ignorant or sloppy commentators referring to Cyprus as a u201Ctiny islandu201D to come with me to the island, where I will gladly drop you off at a remote location with a decent pair of walking boots, and then relax in the capital and see how long it takes you to join me on foot, no buses or hitchhiking permitted.

Finally, just by coincidence you understand, after waves of selling in New York during the day on Friday had softened gold up nicely and brought it down close to its critical support, the London physical market locked up on Friday afternoon. Some investors entertain the romantic notion that this physical market is like an old fashioned cattle auction, with a guy in a tweed jacket and a hat spouting 200 words a minute of auctioneers jargon. It is not. It is computerized and the computers froze on Friday shutting out would be sellers who then went into blind panic, entering the futures market to hedge or short. This tipped the market into a vertical plunge that completed the job of crashing the key support level.

So what now? We can expect a wave a margin calls to go out over the weekend that could crash the market further next week, possibly causing the vertical plunge that began on Friday to continue, perhaps for several days. The ball may be kicked further downhill by Big Money's media pals having a field day over the weekend proclaiming the death of the gold bullmarket. Once all the stops in the $1500 area and beneath have been triggered, it will take a lot of pressure off Big Money and the Comex to meet deliveries — and it will also enable them to replenish inventories at knockdown prices. This is why we were in favor of Puts rather than being stopped out, and thus becoming victims of the trap that they had set.

So, is the gold bullmarket over? Only if the Fed and other Central Banks choke off QE, and there is no sign of that happening, nor is it logical for them to do so as it would trigger a devastating deflationary implosion. The bull case for gold remains intact, as a trader friend in California put it this weekend —

u201CDid gold fall off the cliff because the dollar index ripped higher? NO! Did Uncle Ben Bernanke say they were stopping the $85 billion + QE immediately? NO! Has physical gold become more abundant than any time in the recent past? NO! Are the world’s central banks stopping their counterfeiting operations by devaluing their currency by stopping the printing presses? NO! It’s quite the opposite, Japan, U.S., and the EU are increasing the money supply.

Things to look at that are happening. Are Russia, China, and India amongst other nations still buying huge amounts of gold? YES! Is QE going to continue? YES! They cannot stop it now, because they’ll have a HUGE deflationary episodes which those in power do not want. It would be what is needed to reset the scales of the financial system and debts around the globe, but would mean huge financial losses to the powers that be. Silver isn’t becoming more abundant, it is rarer than gold, so why is it around $26 bucks per ounce?

As we look at the charts on the precious metals, just remember, not all is what it seems. In chess you disguise your true intentions by moving the pieces around the board, setting them up for the attack; better deception skills you have, the more likely you’ll win the game. Think 2-3 moves ahead of your opponent, and you’ll always come out a winner.u201D

Apart from these correct observations by my friend, COTs and sentiment for gold and especially silver remain wildly bullish, which is why we have maintained a bullish stance overall in recent weeks, whilst remaining fully aware of the possibility of a Big Money Viking style u201Crape and pillageu201D operation such as we are now seeing. Having seen it coming in the nick of time, we are hidden behind the stockade waiting and watching for when it's safe to come out again. The Big Money individuals behind this operation are doubtless cracking open the champagne this weekend and laughing gleefully at all the poor slobs faced with margin calls this weekend.

So, we can fairly conclude that Big Money has organized this raid to trigger stops and run people out of their positions, in order that they can ease pressure on deliveries and replenish their stocks at low prices. This means that after a possible panic phase next week caused by margin call liquidation, we can look forward to stabilization, followed by a strong recovery.

Now let's go swiftly through the charts to see what happened.

On its 3-year chart we can see that gold spectacularly crashed the support at the bottom of its major trading range on Friday, in so doing confirming the range as a top, not a period of consolidation, as we had earlier reasonably suspected. Luckily we well aware of this possibility and had taken due precautions. The high volume on the breakdown is bearish, as is the failure of the channel shown. Gold must quickly get back above the breakdown point to forestall a severe decline — and there is little chance now of that happening given the change in psychology that this breakdown has engendered.

The 7-year chart for gold reveals the true seriousness of the situation, as in addition to breaking down below key support, gold has at the same time broken down from its long-term uptrend channel. We had expected this to generate another upleg. Of particular note is that there is no strong support until the $1000 level is approached and our worst case scenario is now a near vertical bloodbath decline towards this major support, which, should it occur, would be a signal to close out Puts etc and go aggressively long.

The latest COTs for gold are now quite bullish, with Commercial short positions having been scaled back substantially and Large Spec long positions having moderated substantially. Should gold now suffer a severe decline, these positions can be expected to get a lot more extreme, and should assist us in calling the bottom.

The dollar had little or rather no role to play in gold's breakdown, as we can see on its 6-month chart. It appears to be topping out beneath a u201CDistribution Domeu201D, a view which is supported by its latest COT chart. Actually it has dropped away from its Dome rather quickly towards its rising 50-day moving average, so it is entitled to minor relief rally soon before it heads lower.

The latest dollar COT chart is strongly bearish, with the Commercials having gone heavily short and the Large Specs heavily long, no doubt assisted in their decision making process by the mainstream media.

We will end with a crumb of comfort for bulls. Gold stock sentiment is at its lowest level ever, apart from a brief moment at the nadir of the 2008 crash. It is at 0 and the great news is that it can't go lower than that. Sadly, however, this doesn't mean that stocks can't drop more. They will if gold and silver crash, but at least it tells us that we should be on the lookout for a bottom occurring before too much lower.

Recently by Clive Maund: All Market Roundup — Bonds, Stocks Dollar, Gold, Silver, Oil, PM Stocks

There is now such an overwhelming array of technical evidence that the Precious Metals sector is forming a major bottom, that by the end of reading this update you will, or should unless you are stupid, understand why we now have no choice but to turn strongly and unequivocally bullish on the sector. Up until now we have had some reservations, but these have been swept away by the latest truly extraordinary data.

You may recall that in the last update posted on the 10th we called for a drop. As you won't need reminding, we got it. On its 7-month chart we can see that gold sliced straight through support at its early January bull hammer low and then dropped steeply into last Wednesday — Thursday, where a high volume selling climax occurred at a parallel trendline target. Gold is now quite deeply oversold, with many oscillators at extreme readings. This 7-month chart cannot provide the big picture of what is going on, only recent detail, so let's now move on to the longer-term charts.

The 2-year chart for gold is very useful as it enables us to examine the large trading range that has formed from the August — September 2011 highs in detail. After the initial drop from those highs we can see that gold settled into a horizontal trading range between clearly defined support and resistance at its upper and lower boundaries. Since the boundaries of this trading range have been tested on several occasions in both directions, resulting in significant reversals, they are clearly are great technical importance, and a breakout from this range will thus be an important technical event that can be expected to lead to a major move. For a variety of compelling reasons which we will soon come to, gold is expected to reverse to the upside from its current position near the lower boundary of the trading range and go on to break out upside from it. Here we should note that although a powerful new uptrend is expected to develop soon from here, we should not be surprised to see some backing and filling over the short to medium-term above the support, that may involve gold dropping a little further to about $1530. This is hardly surprising given that many sector participants are shell-shocked after the latest drop, so that some are in the frame of mind where they will sell for what they can get. Failure of the support at $1500 is viewed as highly unlikely given the current technical readings — if it happened it would have dire implications for just about everything, as it would imply that another 2008 style deflationary implosion was on the horizon, and it is considered unlikely that the money pumpers will permit that, although one day they may no longer have any choice in the matter. Now let's look at the really big picture on gold's long-term chart.

On the 7-year chart we can see that after its latest drop gold has arrived not just at, or close to, the lower boundary of its recent large trading range, but also at a parallel trendline target. It is now in the zone that we had earlier defined as being an excellent point to buy ahead of the start of the next major uptrend. This is an excellent point for it to turn up to start the breakout drive marking the birth of the next major uptrend, and as we will now see, all the technical indications are that it is about to do just that.

The latest COT chart for gold is at its most bullish for over a year, and this chart, which is up to date as of last Tuesday's close, does not even factor in Wednesday's big drop, so readings now can be assumed to be even more favorable. This is by far the most reliable indicator in our tool bag — whenever we have gone against it we have lived to regret it – and it was partly the then still bearish silver COT which enabled us to predict the latest plunge in both gold and silver before it started. After this drop Commercial short and Large Spec long positions (for Commercial read Smart and for Large Spec read dumb) have fallen dramatically and this COT chart is now viewed as strongly bullish for gold.

Now we move on to look at a range of sentiment indicators which provide a raft of evidence that gold is either at or very close to a major bottom. We start with the Hulbert Gold Sentiment Index, which shows that sentiment is at rock bottom, there is only room for it to drop a whisker more. This indicator shows that everybody and all their friends and relatives are bearish on gold, which means that there is almost nobody left to turn bearish on the friendless metal. So guess what happens to the price when people start changing their minds? — that's it — you've got it!

Chart courtesy of www.sentimentrader.com

The gold public opinion index is at even more extreme low levels, being at its lowest reading by a country mile since at least the end of 2008. This demonstrates that the sheep are all up at one end of the field, the bearish end — and we all know what happens to them.

Chart courtesy of www.sentimentrader.com

The Rydex have reduced their Precious Metal holdings to a very low level, as we can see on the following chart, which also shows that they are dumb as a door stopper when it comes to timing Precious Metals purchases. We can therefore take their low interest at this time to be another positive indication.

Chart courtesy of www.sentimentrader.com

How does the all-important dollar fit into the picture at this time? Let’s take a look. You may recall that we were positive on the dollar in the last update, despite the large completing Head-and-Shoulders top evident on its chart, because of the then bullish dollar COTs. As we can see on the 6-month chart for the dollar index below, it has enjoyed a significant rally this month, but has now arrived at a zone of strong resistance in an overbought state.

However, on its longer-term 18-month chart the dollar still looks like it is completing a Head-and-Shoulders top, and this is made more likely by the fact that the dollar COTs, which were distinctly bullish, are now moderating, opening up downside potential again. All the data set out above for gold certainly suggests that the likelihood is high that the dollar will now turn tail and drop hard.

Alright, so if the outlook for gold is now so rosy, what about gold and silver stocks? Precious Metals stocks have taken a terrible beating over the past 17 months, and must be about the most unloved sector on the market, which is very strange given that gold really hasn't fallen all that much. Just how unloved stocks are relative to bullion can be seen on the 20-year chart for the XAU large Precious Metal stock index over gold shown below. On this chart we can see that this ratio has sunk almost to its lowest ever level, on a par with the 2008 panic trough — and after that a big rally in stocks ensued, as we can see on the sub-chart for the XAU index at the bottom of this chart. The key point to grasp when looking at this chart is that when investors are pessimistic towards the PM sector they favor bullion over stocks, because they believe it to be safer, which of course it is, and the ratio sinks, but when their pessimism is driven to extremes it is also a very bullish sign for the sector, as there comes a point when the tide turns and a new cyclical uptrend emerges. Quite clearly from looking at this chart, there couldn't be a much better time for the pendulum to swing in favor of stocks, and that of course implies the birth of a new sector uptrend.

Just how bearish are investors towards gold stocks? — extremely bearish, and the following chart of the Gold Miners Bullish % Index makes this abundantly clear. It shows that with only 6.6% of investors bullishly disposed towards gold stocks, there is almost no-one left to turn bearish. When this happens, you are at or very close to a bottom. Could it go lower? — well, it dropped to zero at its lowest in late 2008, but that would only happen again if we see a deflationary implosion, and all the indications for gold that we have looked at above are bullish, so that either the implosion isn't going to happen, or this time, if it does, gold and silver are going to going contra-cyclical and go up anyway.

There is one final crucial piece that we have to fit into our puzzle, and that is to reconcile the inconsistency of the apparent Head-and-Shoulders top that appears to be completing in gold stocks indices. Observation of this formation has made us bearish, but too bearish, on PM stocks in the recent past. A breakdown from a Head-and-Shoulders top and further plunge by Precious Metals stocks in the near future does not fit with the strongly bullish indications for gold that we have reviewed in this update today. So what we are going to do now is to take a second look at this apparent H&S top but this time using the proxy Market Vectors Gold Miners (GDX) on which we can study the volume pattern. For a true Head-and-Shoulders top should be accompanied by heavy volume as the index rises up towards the Left Shoulder high of the pattern, somewhat lighter volume as it rises up towards the high point of the Head of the pattern, and light volume as it rises up towards the Right Shoulder high.

On the 6-year chart for the Market Vectors Gold Miners above we can see that while volume was high on the rise into the Left shoulder of the Head-and-Shoulders top, and it was much lighter on the rise into the Head, it was high again on the rise into the Right Shoulder of the pattern, which is why the Accum-Distrib line shown on the chart rose to new highs. This is not consistent with a true Head-and-Shoulders top, where volume should be light on the rise into the Right Shoulder. It is therefore reasonable to conclude that the pattern is a phoney, which is consistent with the strongly bullish indications for gold at this time. While it is true that the latest high volume plunge has driven the Accum-Distrib line sharply lower, this looks like a final capitulative selloff.

So, in conclusion, while it certainly takes a lot of courage to buy gold and silver and especially Precious Metals stocks here, especially if you have been beaten up in the recent past, according to everything we have reviewed here, that is precisely what you should be doing.

Recently by Clive Maund: Gold Market Update 09/18/12

      Never before have we seen major indicators in such a conflicting state. Taken in isolation many important indicators are giving clear signals, but they are in conflict with one another to the extent that the outlook is a clouded mess. When such situations arise it usually leads to choppy, treacherous market conditions until such time as the indicators align in a more unified manner.

There are lies, damned lies and statistics, which is why we generally use charts in preference to the latter, but as you will see as you read through this report, using charts is not always a piece of cake either, especially at a time like this. While you will soon understand what I mean when I say that the indicators are conflicting, that certainly does not mean that we can't come to some useful conclusions about probabilities and how to handle these markets going forward.

Let's start by looking at the 5-year chart for gold. By itself the gold chart looks bullish. Gold has been in a trading range for 18 months now, and for most of this period it has been fluctuating between very clearly defined support at $1500 and very clearly defined resistance at $1800. What this means is that these support and resistance levels are VERY IMPORTANT, and a breakout above the resistance at $1800 or below the resistance at $1500 will signal the next major move. What about the danger of a false breakout? — well, there hasn't been one so far as this range has formed. The quite strong advance of last August — September looks like an impulse wave, a move in the direction of the primary trend, particularly as the subsequent reaction has the attributes of a Flag, a type of correction.

It is thus interesting to observe that gold's COT chart is at its most positive since last August right before the sizeable rally started, with the picture improving just last week as Commercials slashed their short positions.

So far, so good, right? Now we look at silver. Its 5-year chart is rather similar to that for gold, with the practical exception that the resistance at the top of the recent trading range is not so clearly defined. This chart too looks like it portends an upside breakout and higher prices.

But if silver looks set to break out upside and rally soon with gold, then why were the Commercials piling on the shorts last week so that they are now getting to a high level again? I have no explanation for this as the COTs suggest that gold is going to take off higher and silver break down, a situation which is clearly highly unlikely. Thus, what we can probably expect to see is more choppy action near-term until gold and silver COTs are better aligned.

If the outlook for gold and silver is taken to be positive, then why are Precious Metals stocks performing so terribly? — they should now be firming up if a breakout by gold and silver is looming but instead they have been plumbing new lows. The 5-year chart for the HUI index looks awful — we had earlier thought that the large Head-and-Shoulders top in this index was going to abort, but the latest weakness is increasing the risk that it is valid. If it is valid it has grave implications for the market as a whole as it targets the 100–150 area, and quite obviously this could only happen in circumstances of another 2008 style deflationary wash, in which case the now lofty broad market would turn tail and drop like a rock. In any event PM stocks have heavy overhanging supply to contend with in the 500–550 area on the HUI. PM sector holdings should be protected by either a general stop below 358 on the HUI index, or by hedging should this level be breached.

The gold shares bullish % index charts indicates that we are getting into normal buying territory for gold stocks, but we should remember that this indicator can actually drop to zero, and it did in 2008, and if that happened we could see terrible losses even from the current depressed levels.

This is the point to look at how the dollar is shaping up and see how it fits into the mix. The 2-year dollar index chart continues to look bearish with a sizeable Head-and-Shoulders top looking like it completing. We now have a Right Shoulder to the pattern that is almost of equal duration to the Left Shoulder, so breakdown soon look likely. 78 is the key level to watch — if it breaks below this, the pattern targets the low 70's. COTs in recent weeks were strongly bullish for the dollar and in effect precluded a breakdown. They are still quite bullish, which means either that this pattern many abort, or that some more time is needed for the COT structure to change sufficiently to permit a downtrend to develop. Here's a contradiction we have to contend with — if the dollar looks like it is going to break down from its Head-and-Shoulders top, as it does, then this is clearly positive for gold and silver — so why do PM stocks look so sick? Also, if the dollar breaks down we would expect to see the broad market advance to accelerate noticeably, breaking it out to clear new all-time highs, probably leading to a parabolic ramp into the traditional u201Csell in May and go awayu201D time. However, if the H&S top in the dollar aborts, which COTs suggest is very possible, then we may be the top in the broad market right now and various sentiment indicators indicate that a top is close at hand.

So how does the broad market S&P500 index chart look right now? On its 15-year chart we can see that after climbing a wall of worry for several years it is now arriving at very strong resistance approaching and at its 2000 and 2007 highs, and psychology is shifting with market participants heading in the direction of euphoria. A Triple Top reversal here would be a highly satisfactory technical development, although we must bear in mind that in real terms, stock values are way below what they were in 2000, once we factor in inflation during the intervening years. Also, regardless of the state of the economy, money spirited into existence by the Fed could drive markets considerably higher.

The VIX volatility index shows that complacency in the markets is at levels not seen since early 2007, ahead of the major crisis, and since nothing has been learned from that crisis, which has been simply papered over with bailouts, created money, credit and derivative expansion etc, the situation is potentially much more dangerous than that which existed in 2007–2008 with a housing market bubble having been trumped by a bond market bubble of immensely greater magnitude.

As the market has continued to rally Dumb Money has been getting itself worked up into a lather again, while Smart Money retreats to the shadows, as the following chart, courtesy of www.sentimentrder.com shows…

A study undertaken by www.sentimentrader.com shows that Investment Managers are at their most bullish since 2006, and for the 1st time ever are actually leveraging their long positions, and while these are generally intelligent people as a group they can fall victim to groupthink like anyone else, so this is viewed as a serious warning that a top is not far away.

Finally, oil has a good run in recent weeks, but the current intermediate uptrend is getting long in the tooth, and the chances of a reversal soon are growing, especially as it is now overbought as it approaches a resistance level.

The oil COT chart certainly suggests that we are at a good point for longs to start taking money off the table, which is alright for us as we got in at the start of this rally .

If, after reading this, you feel more confused than before you started, you have every right to be, but at least you have a clearer idea why you are confused. The current contradictions are expected to resolve themselves into a clearer technical picture with passing time.

Finally we are starting to see evidence that a breakdown and potentially violent plunge may be imminent in the US Treasury markets. With the shameless and relentless abuse heaped upon this market by the Fed and the US government, it is only surprising that it has held up as long as it has. Anyone holding these instruments at this time, which have very little potential for capital appreciation after their prolonged gains, yield next to nothing and carry huge risk of heavy capital loss, is intellectually bankrupt and a moron, although we must recognize that a lot of the buying of Treasuries is undertaken by those who will not pick up the tab for the loss personally if they lose value. Of all the sectors to short, this must be the one.

Last week was a momentous one when the financial world passed the point of no return. Right after a German court cleared the way for massive European QE to get underway, steamrollering opposition from German politicians and the German public in the process, the Fed announced not just QE3, which was expected, but open-ended and unlimited QE and suppression of interest rates over a longer timeframe. The Fed has declared open warfare not just against the dollar and savers in general, but against the entire American middle and lower classes, who will be progressively stripped of their assets and impoverished, the better to serve the interests of the banking class and the elites at large.

It is interesting that the Fed fired its biggest guns right after the German courts cleared the way for Europe to do QE on a grand scale in a similar manner. This means that the dollar and euro are going to go down in value pretty much in lockstep, so we are going to have to take this into account when looking at dollar index charts, which have a very heavy euro weighting, as going forward the dollar index chart may partially mask the ensuing dollar collapse. This brings us to another point — is the rest of the world going to stand by and watch and do nothing as the dollar accelerates into a downward slide, which will have the advantage for the US of devaluing its huge debts in real terms and increasing its competitive advantage re exports? — the answer to that is no — everybody is going to be in on the game and the fiat race to the bottom will intensify fuelling accelerating global inflation even as economies shrivel.

Last week also signaled that we are entering the endgame stage — where the accelerating demise of fiat leads first to rampant inflation and then hyperinflation, devastating global economies and leaving them a smoking ruin, at which point, finally stripped of their comfy sofa and TV set and other essentials of life like food and power, the masses go on the rampage, and u201Cdo an Icelandu201D on the bankers and politicians who brought them to this pass. Then and only then can we start over.

The Fed is playing a very dangerous game. While it is, or should be, hard for any person of even moderate intelligence to understand why anyone would want to invest in either the US bondmarket or the dollar, given the hopeless debt problems afflicting the US, there are still a lot of investors out there who haven't given up faith. These latest cavalier actions by the Fed have essentially given a 2 fingered salute to investors in US dollar assets, and could be the last straw that brings out a wave of dumping of US assets, especially as the effects of this policy become more and more apparent with passing time.

From all of the foregoing it should be obvious that with the starting gun having been fired last week on the fiat endgame, where wave of wave of money creation drives the value of fiat lower and lower, not just in the US and Europe, but around the world, the price of anything with real or intrinsic value is going to go up and up and up — the most obvious beneficiaries being gold and silver.

The predictions made in the last Gold and Silver Market updates turned out to be correct. A pause was predicted, which we got and then a breakout and strong run, which also duly occurred. We were wrong last week, however, in predicting a u201Csell on the newsu201D reaction to the outcome of the Fed meeting. This was based on markets front running the news from the German courts and the Fed, but even we did not expect such unashamed generosity from the Fed — it's easy to be generous with other peoples' money, or rather money you yourself create out of thin air — we didn't just get QE3, which was largely expected and discounted, but open-ended QE, along with an extended commitment to hold rates close to zero. This is what ignited further strong gains in the Precious Metals and the broad stockmarket.

So what does all this mean for the Precious Metals, and for gold in particular? It means that they are to go up and up and up and not just against the dollar but against most other currencies, and as the fight to preserve wealth from the depredations of inflation intensifies, the scarcity value of gold and silver should guarantee gains that more than compensate for the loss in value of currencies — in other words their gains should more than offset inflation. If, late in the endgame, as the increasingly desperate Fed and other Central Banks accelerate their already discredited policies to put off the day of reckoning by heaping still more debt on debt, inflation morphs into hyperinflation, then of course gold and silver will go parabolic and ultimately arrive at prices that would even impress that great Keynesian Robert Mugabe of Zimbabwe who took Keynesianism to exalted heights that most of its proponents can only dream about.

Let's now look at the charts to see how gold is shaping up. On the long-term 12-year log chart we can see that gold remains in a fine and orderly long-term uptrend that has been in force from mid-2005. In a freak move occasioned by the 2008 crash, gold broke down from this uptrend briefly, late in 2008, but its decline stopped at a classic support level and it quite quickly repaired the damage by hopping back into the uptrend, and it has been a case of onward and upward ever since.

We can see that gold has begun a major new uptrend in recent weeks, but is still some way from taking out its highs of August. It should have little trouble doing so before much longer, and given what went down last week, the chances of it double topping with those highs is now rated as close to zero. Once new highs are attained it should accelerate away to the upside, with the Fed graciously providing a monthly reminder of why it should do so. Before leaving this long-term chart we should note how it shows that the new uptrend is still in its infancy, and that the projected upper boundary of the uptrend allows us to estimate a target for this move in the $2400 area.

Those old boys who openly lusted after the likes of Brigitte Bardot , showing commendable taste, even if it resulted in them being chased down by their wives with a frying pan or rolling pin, will surely appreciate the curvaceous nature of gold's ascent shown on its 12-year arithmetic chart. This is the chart of a commodity that is clearly accelerating into a spectacular parabolic blowoff move that could take it much, much higher than current levels.

The 2-year chart shows that we now have a clear and decisive breakout from the lengthy 3-arc Fan Correction. Moving averages are swinging into bullish alignment, with the 50-day about to rise up through the 200-day and in so doing confirm the birth of a new uptrend. Gold is now extremely overbought on its short-term RSI, shown at the top of the chart, but not so overbought on its MACD, which shows that there is room for further upside before it pauses for a while to rest. So it looks likely that it will run at the resistance at about $1800 and stop and rest to digest its gains at about this level, and there is some chance that it could press on as far as the highs of last August at over $1900 before consolidation set in.

The 6-month chart shows recent action in more detail. On this chart we can see that gold is now super critically overbought on its RSI indicator, and and it can continue higher in this overbought state for some time, the chances of a consolidation/reaction setting in soon are now quite high, the reading of this indicator puts us on notice to expect consolidation/correction soon, even if it continues higher for a little while first, and this would make sense given that all the u201Cgood newsu201D with respect to EU and Fed largesse is now common knowledge.

The latest gold COT are showing quite extreme readings so we may see gold pause to consolidate its gains soon, and maybe react somewhat, and it is appropriate that it should do so here having almost arrived at the first resistance level shown on its 2-year chart above. Here we should note, however, that these COT readings could u201Cfly off the scaleu201D during a particularly dynamic uptrend, as we have seen happen with Crude Oil and the Euro fx COT charts in the past.

We will close by taking a quick look at the dollar. The dollar index has now broken down from its uptrend by a clear margin, and is expected to continue to drop. Last week the Fed declared open-ended warfare on the currency which will become the victim of relentless dilution going forward. The only mitigating factor is that other countries and trading blocs are going to follow the Fed's example and go in for currency dilution of their own, with the German court last week clearing the way for massive Fed style European QE. What this means is global QE, so we should see gold rising against most currencies as their buying power is eroded by dilution. Given the magnitude of the Fed's assault the support levels shown on this chart are unlikely to count for much, and it could easily crash them quite quickly. Over time however the dollar's demise may be masked on this index chart by as Europe races to catch up in the QE stakes and the euro is thus subjected to similar treatment.

Most investors were duped by the mainstream financial media into thinking that the broad US stockmarket made an important upside breakout last week, but according to our charts it did no such thing. Sure the market did breakout to new post 2008 — 2009 crash highs, but it DID NOT break out to new highs on longer-term charts, and DID NOT break out upside from the large bearish Rising Wedge that it remains stuck in.

Our 4-year chart below, which shows the uptrend from the 2009 lows in its entirety, makes plain that the market is in the late stages of a huge strongly converging, and thus strongly bearish, Rising Wedge, which results from a steady diminishing of buying power. As we can see it must soon break out from this pattern and if the breakout is to the downside it is likely to plunge, which is likely given the looming Fiscal Cliff which will ravage corporate profits — if it succeeds in breaking out upside it will buy it more time, but this is considered a much less likely outcome.

Our long-term 20-year chart shows that the market has risen up into a zone of strong resistance approaching its 2000 and 2007 major highs — so much for the great breakout. Looks more like a great place for it to turn tail and start another bearmarket.

So what has been happening elsewhere while investors in US markets have been led to the edge of the cliff by the QE pied piper? Investors in Chinese markets do not seem so enthralled with the future outlook at all, as our 4-year chart for the Shanghai Composite index makes clear. It is incredible to think that while the US markets have wafted higher by about 26% since the start of 2010, the Chinese market has slumped by 36%.

So which group of investors is right about the outlook for the global economy? — before you go ahead and place your bets you ought to consider the following chart for the Baltic Dry Shipping Index…

…and we can put this all together on one disturbing chart that enables us to make a direct comparison between these 3 elements…

This Baltic Dry Index is a truly frightening chart, as it is already at the dismally low extremes plumbed during the depths of the 2008 market crash. If it is a reflection of the true state of affairs it means that world trade is imploding — and that means that the US stockmarket is hanging on a thread, with investors smoking the QE hopium pipe. Don't believe it? — before you go off searching for evidence that this chart is somehow skewed and no longer functioning as a true reflection of the state of the world economy, you might like to take a look at the following 2 charts, and then try your hand at finding an excuse for them too…

The 1st is a chart for the US trash index, and while there is scope for distortion here as this is trash carried by rail freight, it is certainly not encouraging, and as we can see it nosedived around the time of the 2008 crash and is plummeting again right now.

Before you dismiss the previous chart as a load of rubbish take a look at this next chart which shows the Velocity of Money going back many years, as we can see it has recently slowed to an alarmingly low level — well below its lows at the depths of the 2008 market crash. Are you starting to get the picture yet? — is the penny starting to drop?? Knock knock — is there anybody in there???

A big reason for the US stockmarket's rally last week was nothing to do with the economy and everything to do with the steep decline in the dollar, so it was just rising to compensate for the dollar drop. The main thing about the dollar is that it has been written off by many commentators as u201Ctoastu201D — and every time that has happened in the past it has made a comeback. Could it be different this time? — Could it really be toast this time round? — anything is possible but the probability of a rebound here is high for reasons that we will now examine.

The entire uptrend in the dollar from the lows of July last year can be seen to advantage on a 14-month chart. On this chart we can see that it appears to have broken down from the main uptrend, a development presaged by the earlier weaker impulse wave that took it up to about 84 in July. This may mark the start of a breakdown from a bearish Rising Wedge, or the channel may be becoming less steep as shown, but with adjusted channel support and support from earlier highs and a rising 200-day moving average close by, it is believed to be too soon to write off the dollar. We see also on this chart that the dollar index is at its normal oversold limit for this uptrend. All this means that the dollar could turn up soon.

With 90% of investors in US markets now looking to the Fed to save the day by waving its magical QE wand, the scope for disappointment is now huge — and there may be nothing to look forward to after the FOMC meeting on the 13th — and what if they do a big QE immediately? First of all it would take time to take effect, and there is no more time. Secondly, even if the banks stopped greedily sitting on all of the QE cash and let it out into the real economy, the result would be roaring inflation, and inflation is already high enough in the real economy, given that it is teetering on the verge of collapse. This inflation would impoverish consumers who would then spend less, thus adversely impacting corporate profits, resulting in falling stockmarkets – so they are damned if they do and damned if they don't.

Given that stockmarkets generally discount the economy 6 to 9 months ahead, it is clear that the situation for the market is already extremely dangerous — the only reason that it hasn't started down already is false hopes over a QE rescue.

The great thing about the current situation is that the latest new high by the market is giving us an opportunity to offload stocks at generally very favorable prices and to reverse position into bear ETFs and Puts, so that we can then feast on the ensuing severe decline while others are losing their shirts.

What will happen to gold and silver if the stockmarket goes into the tank? — well, past experience demonstrates that things could get ugly, although this time we have to factor in that before too much longer the bond market could tank too. Right now after a near vertical ascent silver has become super critically overbought on a short-term basis, meaning that there is a very high probability of it burning out, at least temporarily, very soon.

The latest COTs show Commercial short and Large Spec long positions for silver are at levels that in the past have marked reversal points. Could these readings get even higher? — anything is possible, they could fly off the scale, but this is clearly becoming an increasingly dangerous trade on the long side on a short-term basis at least.

It is suspected that Smart Money, well aware of the trap that has been set, will be taking profits ahead of the FOMC speeches on the 13th, leaving the news orientated little guy holding the bag as usual, so prices could start to come off the top even ahead of this date. It is therefore considered prudent to ditch the vast majority of any remaining long positions in the broad market early this coming week, and also to take positions in bear ETFs and Puts, according to personal preference. If prices rise after the statements any such rally is expected to be short-lived once reality sets in — with so many now bullish, there can't be many left to buy whatever comes out of the Fed.

One erroneous theory doing the rounds is that the markets u201Cwon't be allowedu201D to drop before the election, because this might damage Barack Obama's chances of re-election. There are 2 points to make regarding this. One is that the Democratic and Republican parties are 2 heads of the same hydra, and they are both controlled by the same ruling elites, so that the US elections are a farce. The second is that Israel is known to like Mitt Romney, the Republican candidate, so a market crash to get him in would suit them, although either candidate would serve equally well.

Now that their coats have grown back, it's time for US investors to get fleeced again…

The acute global economic crisis today is the direct result of the continued wilful obstruction and overriding of the normal checks and balances that should operate within a capitalistic system of commerce. This interference has been perpretated by powerful banks and governments acting in collusion, for reasons of profit and power. At every instance in recent years when it looked like the economy was slipping into a necessary recession they have assumed a godlike role and stepped in to head it off. These periodic recessions are necessary to prevent excess debt building up within the system, but the banks liked the ever growing debt, because it meant ever bigger profits for them as they created money out of thin air and then lent it to everyone and everything and raked in massive interest payments. Being immensely powerful they exerted more and more control over governments and succeeded in bending them to their will, culminating in them "coming out" by actually maker bankers into Presidents and Prime Ministers, as has recently occurred in Greece and Italy. So there you have it – the world is now controlled and governed by bankers. The problem with this situation is that their objectives, which are the accumulation of ever greater profit and power, are at odds with those of the population at large.

The reason that things are coming to a head now is that global debt has grown to such gargantuan proportions that the parasites, the banking elites, are now killing their hosts, which is everyone else – Federal governments, State governments, businesses and ordinary citizens. Even the parasites realize that if they kill their hosts, their profit potential is going to be reduced, which is why they have clamped interest rates in interest years – the hosts are totally maxed out on debt and the idea of the interest rate controls is to allow them just sufficient resources to survive, while siphoning off as much profits as possible from their labor. To put it in a nutshell, the banks are farming the world for huge profits, and reducing the global population to a state of feudal serfdom – rather like some sports shoe companies have done with their laborors in places like Indonesia.

The situation has now become dangerously unstable, because everyone and everything is maxed out with debt, which we should not forget is frequently leveraged to far greater extremes via derivatives, and in many instances victims have gone way beyond their capacity to repay. This can only mean one of two things – default or repayment or servicing of debt in devalued coin. In such circumstances it only takes some spark – a catalyst – to bring the whole system crashing down, what we might term a "gigantic global reset", which is actually necessary and is going to happen as a deflationary implosion, or happen later as a result of accelerating QE via hyperinflation and its resulting economic wasteland. That catalyst is Europe. The discordant buffoons running Europe have created such an unholy mess that it is unravelling at extraordinary speed. Realizing that their creditors are not going to be able to repay them, the banks are scrambling to push the bill for their excesses onto governments and taxpayers via bailouts and austerity measures, which they are able to do because of the power they wield over politicians, many are who are severely compromised. The citizens of Greece and Spain don’t need to be told that a deflationary implosion is already underway in their countries, with a vicious circle of falling productivity and reduced tax revenues well underway that is getting worse and worse, so the austerity measures look set to backfire on the bankers and their political representatives. If these austerity measures and associated deflation spread we are looking at a global depression, since Europe is the world’s biggest economy. European leaders, which is to say Central Bankers, are well behind the curve with this and need to get cranking the QE money pumps without delay, in order to put off the onset of depression. This will buy time, and is thus the most attractive option for them, but will still lead to a collapse that is first preceded by hyperinflation.

What is set out above is "The Big Picture" of the world economy. The world needs a long and deep depression in order to purge itself of excess debt and the distortions, inefficiences and misallocation of capital resulting therefrom, and it is going to get it, QE and hyperinflation first or not. All the daily noise in the media about the Greek election, or any elections, or the hyped up Fed meetings and pronouncements, or what Mrs Merkel thinks and says etc is just irrelevant fluff, detail and distraction for the unthinking masses, and ultimately is not going to avert the grim outcome of this appalling mess. Not until all this debt is repudiated and the world has gotten the usurious banking system off its back, with its tentacles reaching deep into government everywhere, will the world be able to move forward again. Then at long last we will be able to hail the return of true capitalism and the free market.

Reprinted with permission from CliveMaund.com.

The patterns forming in gold and silver are remarkably similar, and much of what has been written in the parallel Gold Market update applies equally to silver, so it will not be repeated here. The big question is "has silver finally bottomed?" – that is the question that we are going to attempt to answer in this update.

The chief difference between gold and silver is that silver is much more volatile than gold and thus serves as a vehicle to obtain more leverage on moves in the Precious Metals sector, in either direction. This is demonstrated by the silver to gold ratio chart, which we will look at shortly, which shows that when the sector is depressed, silver falls more in percentage terms than gold does.

On its 2-year chart we can see that while silver aborted its potential Head-and-Shoulders bottom pattern, in the same way that gold aborted its Head-and-Shoulders continuation pattern, like gold it may be forming some other reversal pattern, such as a Triple Bottom. In any event its arrival at key support at its September and December lows has resulted in a bounce, as we expected it would, and the crucial question as with gold is whether this bounce is just that, a bounce and nothing more, or whether it marks an important low before a major uptrend begins.

In attempting to answer this question many of the arguments set out in the parallel Gold Market update in relation to gold apply equally to silver, but one important difference should be highlighted. While gold’s latest COT chart certainly looks bullish, silver’s is much more strongly so, with the Commercial short positions having dropped to a very low level – about the same level as that which preceded the big rally in silver in January and February. Just by itself this strongly implies that silver has just hit an important low and that a new uptrend is dead ahead.

The 2-year silver to gold ratio chart is very interesting. While silver bugs were walking tall back in April 2011, with many being egged on by former vacuum cleaner salesmen etc, they are now almost ashamed to admit to owning the metal. This is certainly a good sign and this ratio chart shows that we are definitely at a good point for silver to start outperforming gold, as it is on strong relative support which has produced a turnaround twice over the past year, and if it starts outperforming gold it means that a PM sector uptrend will be under way.

Everything now depends on market perceptions with regard to the massive wave of QE that is believed to be slated to stave off total chaos in Europe and buy some more time there. If this is not forthcoming and the forces of deflation precipitate a market crash, then of course silver could breach nearby support which would lead to another sharp drop, but if it is, then silver is in position to start a major upleg from here, which given the magnitude of the impending QE, could be truly massive and part of a broad based advance in the commodity sector as the QE, and the massive stimulus already applied, works its way through the system resulting in severe inflation or even hyperinflation.

Regardless of whether or not we have just made an important bottom – and the latest COTs strongly suggest that we have – one thing is as clear as crystal; we have an excellent risk/reward ratio for those going long silver here as shown on its 2-year chart above, as buyers can place a close stop just below the support, and it will be even better if the price reacts back towards last week’s low again in the near future. If the deflationary forces gain the ascendancy short-term then you will be taken out for a relatively minor loss, but if the expected QE is unveiled to save the day, then we could see a truly massive advance from here.

Reprinted with permission from CliveMaund.com.

We have in recent weeks been rather confused by the contradiction between the strongly bearish price patterns that are developing in gold and silver, which are indicative of a major top that portends a brutal deflationary downwave, and the seemingly bullish COTs and sentiment for the sector. Now we believe that we have come to a realization with regards to what is going on with the COTs, which will be set out lower down the page – first we will look at the price pattern development.

Diehard bulls are now raving about the “great buying opportunity” that they see existing in gold right now, after its recent losses. This is reasonable and understandable as gold is now about $300 below its highs of last August – September, is oversold and in the vicinity of a still rising 200-day moving average, and COTs and sentiment are looking bullish. However, despite all this the price pattern that is forming in gold, and in silver, looks bearish in the extreme. As we can see on the 2-year chart for gold, a large bearish Descending Triangle has developed since it put in its highs, above a clear line of support at $1520–$1530. Unless gold can abort the pattern by succeeding in breaking out above its descending upper boundary shown as the red trendline on the chart, then it is destined to break down, which will effectively mark the end of the bullmarket and this implies the onset, or rather the rather the rapid deepening, of the deflationary downwave that will then engulf many countries that have so far escaped its worst effects such as debt-wracked Britain and the US. If you want to know how bad it will get, you have simply to study what has already occurred in Greece and Spain – and it could get a lot worse than that with food shortages, riots, and cities going up in flames.

Let’s stop here to consider the deflation-inflation argument briefly once again. The world needs – and sooner or later is going to get – a full fledged deflationary downwave, whose evolutionary purpose is to eliminate the massive debt and derivative mountains that are dragging the world economy into the mire. Of necessity this must involve the elimination of the parasitic entities that engineered the mess we are now in – the zombie banks and “too big to fail” corporations that have shoved their snouts deep into the trough of public funds via bailouts and other favors, such as extremely low interest rates. What has been going on since the crisis burst onto center stage in 2008 is that entrenched and powerful vested interests have been seeking to stave off the necessary deflationary purging by means of money pumping, playing around with the yield curve, and getting goverments and central banks to keep interest rates artificially low (for them) in order for them to continue their lives of power and privelege and to give them time to offload their bad debts onto to the taxpayer. However, time appears to be running out for them. Their latest ploy is back door funding from the Fed to the ECB in a desperate attempt to stop Europe collapsing – but the situation is now so bad in Europe that it is doubtful whether they will succeed. What looks set to happen is that bond holders will call their bluff with an avalanche of selling that drives interest rates through the roof – and this will eventually happen in the US – so that the whole bloated edifice comes crashing down in a hurry. This is what the ominous patterns in gold and silver portend. The obstruction of the necessary deflation and meddling by the powerful vested interests since 2008 has resulted in the deflationary forces continuing to gather strength with the result that the situation has become explosively dangerous.

Near-term there is scope for a tradable rally in gold up to the red return line of its Decending Triangle, as we can see on its 6-month chart, and we bought the sector as it came off its lows about a week ago in anticipation of this, as it was a very low risk setup, because close stops could be placed just beneath the critical support level at the bottom of the Triangle. The chances of such a rally occurring are improved by the fact that a small Head-and-Shoulders bottom appears to be forming, as shown on the chart, and we will be looking to take modest profits on gold approaching the red downtrend line, should it get that far. Longer-term, however, a breakdown from the Triangle looks likely that would be expected to lead to a severe decline.

The dollar charts are certainly supportive of the notion that a deflationary downwave is set to hit soon, for as we can see on our 4-year chart for the dollar index, it has recently broken out of a large Head-and-Shoulders bottom and looks set to advance strongly soon towards an objective approaching resistance in the 87.50 – 89 area at the 2009 and 2010 highs, the first of which resulted from the panic into the dollar as a result of the 2008 financial crisis.

With regards to the realization concerning the seemingly bullish COTs for gold and especially silver, the following observations were made after Christmas on the site…

Up until now we have more or less automatically assumed that the Large Specs shown on the gold and silver COT charts were wrong and that if they were reducing their long positions to a relatively low level, it was bullish. This was a justifiable assumption that has worked for about 10 years in the Precious Metals markets, as whenever Large Spec long positions rose to a high level the PMs corrected, and when they dropped back to a relatively low level the PMs reversed to the upside to start a new uptrend, which is why we have taken to lampooning them mercilessly, calling them fools and suckers etc – but have the Large Specs really been wrong all these years? – after all they have been long throughout the gold and silver bullmarket. So it has to be said that overall they have not been wrong, but what they have been doing, within their overall correct long positioning, is becoming over-enthusiastic at intermediate market peaks and too negative or conservative at intermediate market bottoms. Despite being short throughout the gold and silver bull market, the Commercials have made money by milking the emotional extremes of behaviour of the Large (and Small) Specs at intermediate tops and bottoms.

In recent weeks, however, we have seen a sea change in the COT structure for gold and silver, with Large Spec long positions dropping back to a very low level in gold, and to an astoundingly low level in silver. Virtually everyone, ourselves included up to now, has taken this drop in Large Specs long positions to be strongly bullish, but looking at the COT charts we can see that this is not a normal drop, especially in silver. Bearing in mind that the Large Specs have been long throughout the bullmarket in Precious Metals, this massive unprecedented drawdown in their long positions, while at first glance looking strongly bullish, may well instead be due to their deciding that either the bullmarket in gold and silver is over, or at the very least that a brutal deflationary selloff is looming, as in 2008 and possibly worse, and this certainly fits with the bearish look of the price charts for gold and silver and Precious Metals at this time, all of which have suffered serious technical breakdowns in recent weeks, and this is said with the knowledge that there is some chance that the breakdowns may be the result of a planned campaign of “chart painting” by Big Money.

So far this realization that the Large Specs may be “draining” ahead of a major bearmarket episide in gold and silver is just a theory, but it certainly fits with the ominous price patterns in gold, silver and the PM stock indices, and also with the horrendous outlook for 2012, which promises to be the year when deflationary forces, held at bay for so long, and magnified by further increases in debt and derivatives, wreak havoc upon world markets and economies. This is the necessary nasty medicine that the world needs to rid itself of the debt and derivatives overhang and of the bloated parasitic entities such as the zombie banks and elite corporations that are dragging everyone and everything under.

There is another aspect affecting the gold and silver price that we need to take into consideration before closing, and that is the increasing chances of military action against Iran. The “Axis Powers”, namely Great Britain, Israel and the US, have long sought hegemony over the Mid-East, for geopolitical reasons and to control the oil resources there, and have made great strides towards their long-term goals for the region in recent years. Here we should stop to point out that the term “axis” as used here is not condemnatory as used by George W Bush in his reference to an “Axis of evil”, but merely refers to the congruent military and political alignments of the elites of these countries and their common goals. Countries in the Mid-East such as Saudi Arabia and the UAE are already “on board” as subservient client states of the Axis. Countries such as Afghanistan and Iraq, which were opposed to the Axis, have been invaded, neutered, and have had puppet governments installed. Remaining countries opposed to the Axis are being subverted and their governments toppled, examples being Libya, where the job has been completed and Syria where work remains to be done. That leaves one large ripe fruit waiting to fall into the Axis basket, and that is Iran, and this fruit needs to be prodded with a stick to get it to fall. The Axis considers that it has nothing to lose, and possibly plenty to gain by provoking conflict with Iran and is tightening the screw steadily by means of more stringent sanctions etc etc and time is of the essence as the Axis economies are verging on collapse due to excessive debt and so may not be able to maintain their massive military machine for much longer. If they can succeed in provoking Iran into doing something rash, like blocking the Straits of Hormuz, then they will have the perfect excuse to bomb Iran into submission, and will start by taking out all its military installations and nuclear facilities. The creation of an external enemy will immediately boost the flagging popularity of politicians at home, such as Barack Obama, who can then portray himself as the kind of “hard man” that American voters appreciate – and this is an election year. Furthermore, a lot of ordnance will be used up blasting Iran, which will be good news for the defence industry who will then have big new orders to replenish inventory. Once Iran and Syria fall, the Axis will effectively be in control of the entire Mid-East.

Incidentally, one of the jobs of Britain, as a primary member of the Axis and a grudging member of the European community, is to limit the power of Europe, which is why Britain regularly “puts a spanner in the works” by vetoing treaties etc as it did recently and prominently, although a factor in this may also be the “island mentality” of Britain. Senior readers may remember the hilarious headline in a British newspaper many years ago which read “Fog in the channel, Europe cut off”, which sums up the attitude of Britain towards the rest of Europe. The attitude of the Axis elites towards China and Asians generally is also interesting. It became clear just weeks ago when they all but referred to China as an enemy and announced their intention to chummy up to Australia to create a military alliance to counter Chinese influence in the Pacific theatre. It would appear that China and Asians generally are not “members of the club” and beneath the pleasantries of diplomacy are regarded as aliens, in much the same way as you might regard the Klingons in Star Trek.

Needless to say, an attack on Iran could be expected to produce a sudden dramatic spike in the price of oil, and also gold and silver, although for obvious reasons the timing of such an attack is indeterminate – it could happen in 2 months or in 10. Such an attack will be made more likely of course by a deflationary downwave hitting, as in these conditions politicians will be looking for a distraction for the masses that gets them to “rally round the flag”. So while the charts for gold and silver portend a severe decline, we should be mindful of the potential for a sudden spike at any time should conflict with Iran escalate.

In the event that we do not tip into the deflationary abyss soon as expected, probably the best commodity to invest in at this time is oil. This is because there is a supply restriction working through now that resulted from the drop in production due to the very low prices following the 2008 financial crisis, as made clear recently by renowned oil expert Dr Kent Moors. This is keeping the oil price propped up and could result in substantial gains provided the deflationary downwave doesn’t hit first – and any such price gains would be magnified in the event of military action concerning Iran.

So we will be examining oil and oil related investments soon on the site.

Reprinted with permission from CliveMaund.com.

Last week saw a severe breakdown in the Precious Metals sector that is now viewed as marking the start of a bearmarket, and that means the onset of a deflationary episode that is likely to prove more serious than that we witnessed in 2008, because it will involve countries going bust rather than “just” banks and large corporations as was the case in 2008.

At first glance gold’s 3-year chart still doesn’t look too bad, with its price in the vicinity of a still rising 200-day moving average, but last week it broke below this average for the first time since 2008, which is in itself a serious warning, and ominous devolopments on the charts for silver and the Precious Metals stocks indices, strongly suggest that gold is in the process of completing an important top area, which looks like it is taking the form of a bearish Descending Triangle. Momentum as shown by the MACD indicator, is now firmly in negative territory, and failure of the important support level at the lower boundary of the suspected Descending Triangle will lead to a severe decline as shown.

The Market Vectors Gold Miners Index (GDX) broke down last week from the Diamond formation that we had identified a week or two ago, confirming that the pattern that has developed this year is a large top area. This being so it is clear that both gold and silver are in the late stages of large top areas from which they are both soon likely to break down, and also that a major deflationary episode is in the works that will see the still elevated broad stockmarket suffer a severe decline, probably similar to that which occurred in 2008. The breakdown in the GDX was a very serious bearish development, so any rallies arising from the current oversold condition are likely to meet heavy selling and are thus unlikely to get far. Whatever rallies now occur should be aggressively sold – the real downside fireworks are likely to occur in the New Year.

On the 5-month chart for the GDX index we can clearly see the fine example of a rare “Fish Head” Triangle, which is what enabled us to call an imminent big move in the sector last weekend, although at the time we did not know which way it would break . To enable those readers less endowed with imagination to spot the Fish Head pattern, an eye and mouth have been added to the chart. We placed a general stop beneath this Triangle which took us out of most positions, and a straddle was recommended for speculators which has already garnered big profits.

At the same time that the PM sector started breaking down last week, the dollar broke out above an important resistance level, negating a potential Double Top, as we can see on its 6-month chart below, although the breakout is not as yet by a decisive margin. This has opened up the possibility of another strong upleg by the dollar, which is of course what we would expect to see if deflation strikes.

How far could the dollar rally? The 5-year chart gives us a good idea – it could run swiftly to the 88 – 89 area during a major deflationary episode.

A big dollar rally of course implies further euro weakness. As we can see on the 5-year chart for the euro, it has just broken down from a Head-and-Shoulders top and could drop back swifly to the vicinity of its 2010 lows in the 120 area or even lower. This implies further turmoil in Europe early next year, which is hardly surprising given the disorderly crew who are running Europe. Actually, it is surprising that the euro is not a lot lower considering what has gone down in Europe in the recent past – it would appear that the markets have been hanging in and hoping for a solution – tough luck if one isn’t forthcoming.

If the PM sector is signaling a major deflationary episide, then we should see signs of topping action in the broad stockmarket, and we do. A large Head-and-Shoulders top is completing in the S&P500 index, and with the index high in the Right Shoulder we are believed to be at an excellent point go short, buy bear ETFs etc, which we will be reviewing on the site shortly. One leading market commentator who actually has a very good track record recently said that the markets will continue higher “because people are going to continue getting up in the morning and going out to work in order to buy stuff for themselves and their families”. Oh, is that right? – try telling that to the 50% of Spanish youth who are out of work and can’t find it no matter how hard they try BECAUSE THE JOBS DON’T EXIST due to the economy of Spain being ravaged by deflation, aggravated by the bursting of a huge property bubble – and what about American workers in the early 30′s? – they didn’t go around asking “buddy can you spare a dime?” because they were lazy ****ers – they were likewise the victims of deflation. This same writer portrayed the 2008 market meltdown as a “once in a lifetime event”, implying that everythings OK now and that “the great bull will climb the wall of worry”. That might be so if the problems exposed by the 2008 financial crisis had been properly dealt with, but they weren’t, they were simply “swept under the rug” – papered over with more of the stuff that created the problems in the first place – debt and derivatives – which means that the forces of deflation have now built up to staggering proportions – the lamed zombie banks, who exist now only to line the pockets of their elite executives and sluice fuinds in the direction of favored politicians, and governments nursing monumental debt overhangs are now powerless in the face of the oncoming deflationary train wreck. The final denouement will be when bond markets crash and interest rates skyrocket – thats when creditors will finally get the message that they are not going to get a penny back. One big reason for the current procrastination is that big private creditors are scrambling to use the current window of opportunity to offload as much bad paper as possible onto governments and thus the taxpayer before the final collapse.

Let’s stand back a moment now to consider the larger implications of all these developments on the charts. The breakdowns now occurring across the PM sector are an indication that the forces of deflation are set to assert themselves and come to the fore. These forces have always been there, lurking in the background since the first major deflationary convulsion back in 2008, and their intent is to cleanse the world economic system of the dross of the gargantuan debt and derivatives overhang that is bringing the world economy to a dead stop. The key point to understand here is that these forces may be kept at bay for a while but they cannot be stopped – and creating even more debt and derivatives in an effort to stave off their impact, which is what central banks and governments have been doing since 2008, simply creates a more disastrous situation later on. Thus the accelerated ramping of the money supply and the maintenance of “zombie banks” and the propping up of bond and stockmarkets is an open invitation to disaster on a massive scale. There is still a widespread assumption that somehow “they” will fix it, they will muddle through by creating money out of nothing, juggling things around and engaging in firefighting where deflation threatens to break out and we will eventually come out of the end of the tunnel. We have even fallen for this ourselves having been fooled temporarily by the COTs and other data which it has to be said may be being tampered with. The problem is that the continued increases in debt and derivatives have created a situation that is dangerously unstable and now increasingly out of control. There is also a widespread assumption that that the entrenched powers that be, Goldman Sachs, the Republican Party etc are unassailable and immortal – that’s what the Tsar of Russia and his family thought before they were summarily shot by the Bolsheviks in 1918. Nothing is forever.

2012 is going to suck – it probably won’t be as bad as the movie “2012″, but it’s going to suck. Prepare yourselves as best you can – that’s what we are going to do on www.clivemaund.com

Reprinted with permission from CliveMaund.com.

Gold did exactly as predicted in the update last weekend – it dropped back briefly to touch the bottom of our short-term reaction target range at $1680 before rebounding, as we can see on the 4-month chart below, and we were buyers around $1705 and below. The rebound on Tuesday left behind a clear bull hammer on the chart, which is positive. After the rebound gold advanced to the next resistance level shown, which may force another reaction this coming week, especially as Commercial short positions, which are still overall bullish, rose significantly last week – any such reaction should again be bought, although with downside volume now lighter than upside volume and silver now looking set for another upleg, there may be no reaction at all. The Prime Minister of Greece Mr Papandreou got “taken behind the woodshed ” by Mr Sarkozy and Mrs Merkel for threatening to tip over the apple cart and wreck their plans with his referendum brainwave, but as this is a family website, we won’t repeat here what they said to him, but it served to put him back on side.

The chart looks positive here and like gold is shaping up to challenge its highs again – and why shouldn’t it? – world leaders are cornered and only have one card left to play in the intractable global debt crisis fiasco, which is to continue to procrastinate with full on Quantitative Easing (QE) – just stop and think about this term for a minute – what kind of idiots do they take most people for that they can’t see past patronizing language like this? – if you or I did this with a machine in our backyard we’d be thrown in jail for counterfeiting, but now that they are unencumbered by the inconvenience of a gold standard they can do this in broad daylight and get away with it.

The Commercial short and Large Spec long positions rose significantly last week, and while this may presage a short-term reaction, overall the COT structure remains positive for gold.

Some people have been freaked out over the past day or two by fears of new more stringent CME margin requirements, but according to this press release by the CME Group these fears are unfounded, and the collateral damage caused by MF Global going belly up will be minimized.

As we have said before any attempt to deal head on with the debt and derivatives crisis will lead to an almost instant global economic implosion with catastrophic consequences, because both debt and derivative have risen to levels that are totally out of control – they must be written off, which would involve convulsion – or inflated away to oblivion. Applying austerity measures to the hapless populace to help reduce deficits will not solve the problems – all that will do is lower capital utilisation and productivity and reduce tax revenues and make it even more difficult for governments and municipalities to balance their books. In this respect Greece has been a “trial balloon”, a little experiment on the fringes of Europe to see what will happen if you squeeze the masses until the pips squeek. Politicians don’t like what they see there at all, and those who saw the video of Gaddafi’s demise may have been having sleeping nights, culminating in them suddenly sitting bolt upright in bed at 3 a.m. as the solution hits them – more QE.

The charts of currency cross rates, for example the dollar versus the British Pound or the Swiss Franc, tend the mask the ongoing demise of fiat, because all fiat currencies are going down the drain together in a race to the bottom. This has massive inflationary implications which will have a huge impact on peoples’ standards of living and quality of life in the future, a simple example being that many people who think they have have put away enough for a decent retirement are in for a very nasty shock, because they haven’t reckoned on government bandits pillaging their savings via rampant inflation that is set to get much worse, in order that they can stealth default on debts and avoid a liquidity crunch and the resulting political turmoil. Just how bad this situation can be gauged by looking at the charts for gold going back to about the year 2000. As we can see gold has risen more than sevenfold in just over 10 years against the US dollar, and if we stop to consider that gold is real money whose intrinsic value does not change, and which rises or falls in nominal price in response to the rise or fall in the actual value of whatever currency it is being measured against, it is quite clear that fiat currencies like the dollar are on the road to worthlessness. Furthermore, there is no prospect of this process ending – on the contrary, since politicians response to the debt crisis has been to pile on more debt, raise the debt ceiling etc and engage in more financial engineering and rearranging the deck chairs on the Titanic to stave off the inevitable, it is set to accelerate, and this being so it is reasonable to expect gold’s steady uptrend to continue, and if anything, accelerate, and as we can see on the chart, even if gold now enters a more lengthy period of consolidation or reacts, there is plenty of room for it to do so without breaking down from its long-term uptrend.

Many readers may have seen the disaster movie 2012, which in the writer’s opinion, while certainly entertaining, is probably the most absurd film ever made, which is certainly the view of many scientists. Even if the events depicted in this film were to come true, they would take hundreds or more likely thousands of years to transpire, but of course those kind of timeframes don’t suit Hollywood storyboards, so they boil it down to a timeframe of about 3 weeks. So, you don’t need to fear huge tsunamis lapping at the slopes of Mt Everest next year (my favorite scene is where the monk on a himalayan mountaintop rings a giant bell before being overcome by the tsunami), but you do need to fear the giant out-of-control tsunami of debt and derivatives which governments and politicians around the world are trying to combat with a blizzard of newly printed up cash – it’s the recipe for a perfect hyperinflationary storm and we are not going to have to wait 300 years for it to hit – it could start to kick in next year.

Reprinted with permission from CliveMaund.com.

No politician wants to end up with his head adorning the railings of some public building, and thus – possibly spurred into action by the video of the grisly end of Colonel Gaddafi – European leaders started to display qualities normally totally alien to them last week, in particular unity and resolve and a rare sense of urgency, in dealing with the acute crisis facing Europe. It did not go as far as statesmanship, however, because that would involve actually dealing with the root causes of the crisis, although with the best will in the world it’s too late for that, so instead, predictably, they decided to fall in line with the tried and tested US solution to all economic problems, which is to print money and sell more debt – if they can find anyone dumb enough to buy it, that is, and a nice touch later in the week was the sight of a European representative going cap in hand to meet people with real hard cash in their pockets, the Chinese. In short, they decided to “kick the can down the road” like everybody else. If they hadn’t done this and had instead insisted on continuing with their Dickensian approach of forcing austerity measures on the hapless populace in order to get them to pick up the tab for the bank’s mistakes and excesses, the riots in Greece would have spread across Europe and they would have been faced with the end of their Empire. It will all end in a hyperinflationary depression anyway, but who cares about something that far off?

Needless to say, the news that Europe is set to wholeheartedly embrace the economic principles of the likes of Alan Greenspan and Ben Bernanke and refill the punch bowl with a gusto set the markets ablaze. Markets love inflation, hate deflation – they love unlimited liquidity and an expanding money supply – so what if money loses its value? – that’s only a problem for the little guy shopping for food and gas. The prospect of a massive new money factory opening in Europe to rival that of the biggest US operations is music to the ears of investors in inflation hedges like gold and silver and explains why practically everything (with the notable exception of the dollar) broke out upside last week, when it become clear that Europe is set to use the “helicopter Ben” approach to its debt problems. While there are many muttering that “the devil is in the details”, there is only one point that needs to be understood which dwarfs every other consideration, and that is that they are going to flood the markets with manufactured money, and any rules or regulations that get in the way will in due course be swept aside.

On its 4-month chart we can see that gold broke out upside from what is now clearly an intermediate base pattern that formed above its rising 200-day moving average, with the advance last week looking like the earliest stage of a major uptrend that should take it comfortably to new highs. After 5 days of gains gold arrived at its first serious obstacle on Friday, the resistance at the underside of the earlier intermediate top area, so we should not be surprised to see consolidation or a minor reaction early next week, which is called for by the rather extreme reading of its MACD histogram. It could react back to the $1680 – $1705 area and will be viewed as a buy if it drops to about $1705. The MACD indicator itself shows that gold still has plenty of upside from here, so after some possible consolidation/reaction to digest last week’s gains it look set to continue higher.

Gold’s COT chart continues to look strongly bullish, with a relatively low Commercial short position. This short position rose somewhat this past week, which is to be expected given that this chart is up to date as of last Tuesday’s close, and thus includes gold’s big up day last Tuesday.

As we had suspected would happen last weekend, the dollar crashed important support on Friday and plunged, despite looking like it was in position for another upleg. The dollar had been “dining out” on the euro’s misfortunes and it now looks like the big September rally was its Swan Song – its final upward flurry before a brutal downtrend sets in that takes it to new lows. The dollar’s fundamentals are truly awful, which is good news for gold and silver, at least.

The Commercials have been heavily long the euro for weeks, which means that they were betting on an easing of the crisis in Europe. As usual they have been proved right, and the Large Specs who are short look set to get buried.

Reprinted with permission from CliveMaund.com.

Technically the picture for gold now looks strongly bullish. Action played out last week exactly as predicted in the last update with gold breaking down from its Pennant pattern AND ABORTING THE BEARISH IMPLICATIONS OF THE PENNANT, by dropping back modestly instead of plunging. It arrived back in our target zone near $1600 on Thursday and then reversed quite sharply to the upside on Friday. While nothing is guaranteed in this business and there is still a reduced chance of its being a Pennant with an amended lower boundary, this action implies that a positive QE-rich resolution of sorts of the acute problems in Europe is imminent, despite the severe and intractable problems there.

If we do see a QE-rich “solution” to the problems in Europe shortly then we can expect both gold and silver to re-enter robust uptrends, and this is what the latest COTs are pointing to. The latest COTs for gold show that Commercial short positions dropped back further to a record low last week. This augurs well for a new uptrend.

In the light of the outlook for gold based on what we have observed above, the charts for the dollar are rather perplexing. On its year-to-date chart we can see that it appears to be in position to stage another strong upleg, or at least a bounce, as following a strong breakout move it has reacted back to a zone of support near to its rising 50-day moving average, following a normally bullish cross of its moving averages. However, the COTs for the dollar remain strongly bearish, and the COTs for the euro remain strongly bullish, as shown below, implying that despite the potential for renewed advance it is going to crash this support soon and head back towards the lower support shown, which fits with the bullish outlook for gold and silver at this time.

One final point – the times of greatest opportunity are usually masked by danger, and there is certainly great danger at this time of Europe failing and thus a lot of associated fear in the markets. Could things get even worse and tank the markets, possibly including gold and silver? – yes, of course they could and we looked at this blood curdling scenario last week, but whether or not this occurs one thing is clear – the normally right Commercials are banking on a resolution of this crisis and soon, and if things do get even worse it is safe to assume that their positions will become even more lopsided. We tend to assume that gold and silver will automatically drop in a market crash scenario, as in the past this has resulted in funds fleeing to the safety of the US dollar and Treasuries, but it could be that during the next such crash this will not happen, because the dollar and Treasuries may no longer be perceived as safe havens what with US banks failing all over the place, and if that were to be the case investors would be left with precious few options, and might look instead to the Precious Metals as a refuge, with the result that they either don't get dragged down much in the general melee or even advance.

Reprinted with permission from CliveMaund.com.

Action yesterday across markets was bearish and set alarm bells ringing – in particular the action in the PM sector, where the Head-and-Shoulders bottom pattern that we have observed in PM sector stock indices appears to be aborting. If it does abort it will probably mean that the broad market will go into the tank, and that is precisely what we we can expect to happen if Europe should fail.

It has to be said that up until now we – and most of the rest of the world – have blithely assumed that, confronted with catastrophe, European leaders will overcome their differences and solve Europe’s problems by printing up a few trillion euros to paper over the cracks, US style, and keep the show on the road for a year or two longer, but it is now becoming increasingly apparent that the scale of the problems is so gargantuan that there may be no credible or workable solution. The sad fact of the matter is that the bungling, discordant self-serving buffoons who run Europe may well have left it too late. If Europe should fail – and the markets look set to pass judgement on it next week, after a weekend of crucial meetings, then the consequences will be unthinkable, yet think about them we must.

If Europe should fail this is what we can expect to happen – European banks will crash and burn and take down major US banks, which are already walking wounded basket cases anyway. We are likely to see a lengthy unscheduled “bank holiday” – banks will slam their doors and if your money is still inside their vaults then you are out of luck. Major disruptions in supply and distribution of food and fuel in particular will trigger general panic, and riots and mob violence will spread rapidly – what we have seen on TV happening in Greece will suddenly happen on the streets of the US and many other countries. Stockmarkets will crash in a manner that will make 2008 seem like a “walk in the park”. Virtually every asset class and investment will crater – especially commodities, stocks and Real Estate. The euro will be vaporized. The tidal wave of funds liberated by this mass panic are going to have to go somewhere and normally we would expect them to go into the US dollar and Treasuries, but with US banks failing even this cannot be relied upon. The one surefire investment category that will shine – provided that is that the markets or brokerage houses etc involved with these transactions don’t themselves fail – is “misfortune securities”, meaning bear ETFs and Puts.

The gravity of this crisis is such that we are not simply talking about protecting investments and making opportunistic gains out of the mayhem that will ensue, if Europe should fail, we are talking survival issues as well, as due to the interconnected nature of the global economy things could become very ugly, very fast across a broad front. If you want to learn what life is like when banks suddenly slam their doors, then you should read up on the Argentinian crisis of the early noughties. The middle class suddenly found themselves disconnected from their savings, and as many of them lost their jobs at about the same time, they became instantly destitute, and forced to swap their possessions for food. Crime soared and people who had been used to living relatively cushy lives suddenly found themselves living on the edge in a law-of-the jungle nightmare. If Europe should fail this is what may quickly become reality not just in Europe but in the acutely fragile and vulnerable US and many other other countries as well. Other undesirable consequences will be unemployment rising to incredible unprecedented levels, so that students leaving college will have almost ZERO chance of finding work. The travel industry, much of which is non-essential, will be devastated with airlines slashing flights and going bust and hotels suffering extremely low occupancy rates.

With things rapidly coming to a head in Europe, this catastrophic chain of events could be set in motion as early as next week. So stop and think about this for a moment – WHAT WILL YOU DO, AND WHAT SITUATION WILL YOU FIND YOURSELF IN, IF BANKS SLAM THEIR DOORS WITHIN THE NEXT COUPLE OF WEEKS? – are you starting to see what I am driving at? Good, then here is what you do. You go down to the bank either today (Thursday) or tomorrow – we have the luxury of another day – and draw out a stash of cash – sufficient to keep you and your family in food and essentials for at least a month and preferably more like 3 months. When you stroll into the bank it will feel surreal, everything will appear normal and people will be standing in short lines and chatting and smiling etc, and you may find yourself thinking “That Maund’s lost it – he’s completely off his rocker”, but if the danger I have described should become reality then you are going to be mighty glad you visited the bank this week, instead of turning up in a couple of weeks to find the doors shut and a huge crowd of desperate people outside hurling rocks at the windows. If this danger does not become reality, and there is a miracle solution to Europe’s problems and everything returns to “normal”, then you have lost nothing and you can stroll down to the bank again and pay the funds back into your account in a few weeks time, once you are convinced it is safe to do so. No-one will think you are crazy because of course you don’t have to tell anyone why you are drawing out the money.

What would be the effect on the Precious Metals sector, if Europe should fail? – sadly it will crater along with the rest of the market and we saw early evidence of that with the “shot across the bows” yesterday when the sector fell heavily on a broad market retreat. Now, we don’t know for sure that Europe will fail, but the situation is very precarious and it looks like a 50:50 chance at this point that this dire scenario will prevail, or at least a 30:70 chance that it will. The danger is sufficiently great that we need to be aware of it ahead of time, so that we don’t get caught out and go into blind panic along with the mob. What you do about this will depend on your own personal situation and investment orientation. There are various ways to handle it – you can pull in close stops on PM investments, which is recommended, hedge with bear ETFs and/or options, and the more aggressive and opportunistic amongst you can set yourselves up to make a fortune in options if the markets crater, accepting fully the risk of losing your stake if the crisis is averted or at least postponed significantly.

Let’s hope Europe doesn’t fail – but be ready if it does.

First posted on www.clivemaund.com at 7.30 am EDT on 20th October 11.

Footnote posted a day later on 21st – there isn’t much that suprises me these days, but I have received some news from a subscriber, Bob, in the US, that has left me dumbfounded, and disappointed I must say as I was looking forward to being responsible for causing a run on the banks. Here is what he told me –

“Clive, in your post “If Europe Should Fail” you have recommended your subscribers “draw out a stash of cash”. I have been attempting to do this with my local bank for over a week and this is what I have learned. The only “cash” the banks have at their facilities is the bare minimum for making change, cashing paychecks, etc. More than 99% of their so called cash “assets” is electronic money and not “cash” money. They are generally happy to transfer this electronic money elsewhere but if you want the real thing, “cash”, the bank will, in most cases, either deny your request or put you off for, in some instances, more than a week. Many of my contacts across the US are reporting having the same problems I am having getting any significant amount of cash out of their local banks.”

The meaning of this is clear – TAKE WHAT YOU CAN WHILE YOU CAN.

Reprinted with permission from CliveMaund.com.

News has come in that “Germany and France are spearheading a multi-trillion dollar u201Cshock and aweu201D programme expected to be agreed next weekend and presented the following week at the G20 summit in Cannes. The international community may provide further support after the G20 agreed that the IMF should u201Cconsider new ways to provide on a case by case basis short-term liquidity to countries facing systemic shocksu201D. The IMF will report back on what measures it would offer at the summit in Cannes.” This should be music to the ears of gold and silver bulls and is of course exactly the sort of “solution” we have been expecting – and since we have aligned ourselves with the Commercials, exactly the sort of solution they have evidently been expecting. The solution involves a massive blast of QE which will be highly inflationary and thus will drive gold and silver and other commodities higher. European leaders appear to have at last learnt this universal solution to all problems large and small from the US, and although it doesn’t really solve the problems at all and in fact makes them ultimately worse, at least “it kicks the can down the road” and keeps leaders in power for a while longer.

Over the past week gold has advanced slowly towards a clear resistance level in the $1680-$1710 zone. This is a very important resistance zone as it marks the lower boundary of the earlier top area, so it will be a big deal if gold can climb back above this level. You will recall that in last weekend’s update we had classed the current holding pattern as a potential bear Pennant, but now, even though gold may back off short-term, the action of recent weeks is viewed as a basing pattern that should lead to renewed advance before much longer. Because of the strength of this resistance level and the fact that gold has got back up to it quite quickly we should not be surprised to see gold turn tail and drop short-term, perhaps back to the support in the $1600 area, which is also suggested by the weak volume on the rally this past week which indicates that gold is not yet ready to take out the resistance. We should not be upset by this and instead use it as an opportunity to build positions further, as it is now thought unlikely that gold will drop below $1600 after which it is likely to turn higher and drive through the aforementioned resistance. It is now thought highly unlikely that gold will drop to the “aggressive accumulation zone” shown on our chart. In addition to the powerfully bullish fundamental factors set out above, the gold COT charts remain strongly bullish, and are little changed from last week.

The latest copper COT charts also provide circumstantial evidence of an impending big rally in commodities, with the habitually wrong Large and Small Specs going short copper while the Commercials are now quite heavily long. The Large Specs got slaughtered after their July euphoria when copper challenged its highs.

The dollar has reacted back sharply over the past 2 weeks, probably due to the prospect of resolution of the acute crisis in Europe. It is now oversold short-term and on support near its rising 50-day moving average, and is therefore entitled to a bounce. However, if we see some real progress in Europe and easing of the crisis there in coming weeks, then all of the gains made during the recent rally could be given back — and the rest, as the dollar has only benefitted in the recent past by default — due to its status as u201CKing of Hellu201D.

In conclusion gold looks set to break down short-term and drop as the dollar stages a recovery rally, but the expected drop should be nowhere near as severe as the September plunge, and it will provide a final opportunity to load up with gold and Precious Metal investments generally ahead of the major rally that the COTs are presaging.

Reprinted with permission from CliveMaund.com.

It now looks like we were a little too bullish in the last update, for the way silver has acted over the past week suggests that another sharp drop is imminent before the dust finally settles on this reactive phase, that it likely to take it to or some way below its recent panic lows.

On silver’s 4-month chart it is now apparent that a bear Pennant has been forming since the panic bottom, with the weak upside volume portending an imminent breakdown and steep drop. A reader pointed out to me during last week that silver’s panic lows occurred in thin trading on the Hong Kong market, and for this reason we do not have to factor in the tail of the “Dragonfly Doji” candlestick shown on the chart when deciding where to draw the boundaries of the Pennant. The measuring implications of this Pennant call for a drop at least to the vicinity of the intraday lows of the Dragonfly Doji and possibly somewhat lower towards the $24 area — at this point the decline should have completely run its course and we will be looking to buy aggressively. We can see that a bearish “Harami” pattern has formed in silver over the past 2 trading days, implying that breakdown from the Pennant and the expected steep drop that will follow is imminent. A reason why this next drop should end the decline is that silver is already deeply oversold as shown by its MACD indicator, and it will of course be even more so after this impending decline. Those interested in going long silver investments in the near future should “keep their powder dry” but stand ready to wade in big time if silver drops into the bright green “aggressive accumulation zone” shown on our chart.

On silver’s year-to-date chart we can see that it has suffered 2 massive takedowns this year, that have brought its price back almost to where it was at the start of the year. So why is this?

You may recall that there was much talk earlier this year amongst silver bugs about J P Morgan’s massive silver short position, and their cheerleaders encouraged them to believe the fantasy that they could bring down J P Morgan by buying physical silver, as expressed by the picture below which was doing the rounds at the time…

The idea that a mottley bunch of small highly leveraged speculators can bring down an entity like J P Morgan is of course laughably naive, and what in fact has happened is that the big players have turned the tables on the small speculators, by using their leverage and margin against them. They organised the 2 massive silver takedowns, one in early May and other just finished, aided by friends in high places hiking margin requirements, to run them out of their positions, by triggering their stops and margins calls, and then covered their shorts at the resulting low prices. Thus, the latest COT charts reveal that Big Money has largely cleared out of its short positions in silver, which is mega-bullish, with the dramatic drop on the last rout being a sign that we haven’t got much further to go before silver reverses, possibly dramatically to the upside, and this is a train that will leave the station without all the get rich quick merchants that were strutting about proudly earlier this year, who will be left behind lying face down in the dirt.

The COT chart above shows an astonishing drop in the Commercials short positions in silver over the past several weeks which is viewed as hugely bullish for the medium and long-term, notwithstanding the expected sharp drop over the short-term. While with this chart some concern could arise over the distortion created by hiked margin requirements, such is not the case with the following chart which has been supplied by Richard Guthrie of The Scarborough Bullion Desk in England, for this is a ratio chart showing the ratio of the Commercials’ short to long positions, and as such is immune from such distortion, and as we can see this ratio is NOW AT A RECORD LOW, which is interpreted as hugely bullish, and here we should note that this chart is only up to date as of 20th September and does not include the latter part of the plunge, and so the ratio can be presumed to be at an even lower reading now. The message of this chart is clear — we are now late into the endgame of the transfer of silver assets from weak to strong hands, and that, therefore, the final plunge that is expected shortly should be seized upon as a rare opportunity to go long all things silver — silver itself, silver ETFs, silver stocks, and options for leverage in all of these by those who are qualified by experience to handle the risks involved, at low prices that we are unlikely to see again for a long, long time.

Reprinted with permission from CliveMaund.com.

More seriously we now have to consider the implications of last week’s plunge which was even more brutal than we had expected, and we were expecting it to be bad. On the year-to-date chart shown above we can see that the C-wave smash phase is now underway in earnest, and that it has already crashed key support at the lower boundary of the large top area shown on the 6-year chart below. With the MACD indicator not yet at the sort of extreme readings that we saw at the tail end of the May smash, and volume high but not yet climactic, more severe downside action is on the horizon regardless of brief intraday "air pocket" bounces that might be occasioned by the short-term oversold condition.

We are now entering a deflationary bust phase that politicians have been trying to ringfence since 2008. Now they are outmatched and outflanked and totally out of options, which means that we should see — and it started last week — a broad based commodity and stockmarket crash, and therefore we should expect the worst with regards to silver. How far could it drop during this phase? — the long-term 6-year chart will help us to determine this.

We has already determined that a massive top area was forming in silver before last week’s breakdown, as the chart from last week’s update, reproduced below, shows…

If we now look again at the latest version of this chart we can see how, having crashed the support at the lower boundary of the large top area on Friday, silver is now in freefall, and while there is some support in the $30 that could produce temporary relief, the magnitude of the decline on Thursday and Friday against the background of emerging deflationary forces strongly suggests that silver will soon crash this support and continue its freefall even lower — and there is no significant support below the $30 area until it gets to the $20 area. This therefore looks like the downside objective for this decline. Even if we are wrong on this and the decline stops in the $30 area, we will have plenty of time to unload our shorts, as with confidence shattered it won’t be going back up again anytime soon — first a base area would have to develop to allow confidence time to recover.

We have garnered massive profits from the strategies we have employed over the past several weeks to profit from a collapse in the silver price, including a near 1000% gain on a ZSL Call, which has included bear ETFs, Calls in bear ETFs, and Puts in selected silver stocks. This started with THE COMPLETE TOOLBOX FOR CAPITALIZING ON A GOLD & SILVER PLUNGE, and continued with SILVER AT THE PRECIPICE, and SILVER WHEATON – the perfect silver stock to short. At this juncture with the prospect of further heavy losses in silver, we are sitting on these positions which are expected to appreciate further. Out of to respect to existing subscribers we would not normally make such a large number of recent articles available to the public at large, but as we positioned ourselves ahead of the start of the crash and are already sitting on massive gains, we can afford on this occasion to be more generous in our disbursements to the wider world.

If you think this nascent crash is just some sort of heavy correction that has has almost run its course, you need to open your eyes. We have already looked at the awful and ominous copper chart in the Gold Market update, which is crashing already and looks set to crater, and now, to get more of a frame of reference for the silver crash, in addition to that provided by the 6-year chart for silver itself, we are going to look at the 3-year chart of the big silver producer, Silver Wheaton.

Silver Wheaton’s chart sports a magnificent example of a classic Head-and-Shoulders top. Having spotted this we have shorted it near to the top of the Right Shoulder of the pattern, and our investment is already looking really good. The amazing thing about this chart is that, despite the ferocity of the decline in silver late last week, Silver Wheaton still has not broken down below the neckline of its H&S top — but this is only due to the fact that just a week ago many were still bullish on this stock and it was flirting with its Right Shoulder highs, and as recently as Wednesday it tried to break out above these highs but reversed intraday to leave behind a very bearish "shooting star" candlestick on its chart, so it has had a long way to drop just to get to the lower boundary of its top area. Thus, if you think that the fact that it has not broken down from its top area yet is a sign of strength, you are very much mistaken. After a possible weak bounce from the support at the neckline of the pattern in sympathy with a possible fleeting bounce by silver early next week, the prospect is for an imminent breakdown from the top area that should lead to savage decline, with the H&S top projecting a MINIMUM downside objective in the $20, and if the deflationary downwave unfolding is as bad as that in 2008, or worse, then we could easily see Silver Wheaton back at its 2008 lows in the $2.50 — $3.00 area. So what do you think that implies for the silver price??

Silver longs have already been taken to the shearing shed and royally fleeced over the past few days, just as we expected, and are in a state of shock, smarting from massive unexpected losses, and many are not psychologically disposed to "bite the bullet" and get the hell out before they incur further huge losses. Thus, after already being fleeced they are likely to bleed steadily to death as silver heads lower in the weeks and months ahead. "It will come back" they will console themselves, and they and their cheerleaders will be looking around for someone to blame — the banksters, the cartel, the Comex, J P Morgan etc, who have conspired to cheat them out of their just rewards — anyone but themselves. In life you get what you pay for — many of them took cheap or free advice, and while they may have saved a few hundred bucks by doing so they are now losing thousands — doesn’t look like such a bargain now, does it? I remember someone wrote me a couple of years ago and smugly proclaimed that "Fundamentals will always trump technicals" — and added that "Technical Analysis doesn’t work anyway because the markets are so manipulated". Oh really? — is that right? — unless you are privy to important inside information that is not known to the markets, it is the other way around — technicals, properly interpreted, will always trump fundamentals for the simple reason that price action, which is the distillation of all known fundamentals, embodies all the news and is the latest information you have on a commodity or stock or whatever. Very often the reason or reasons for a nascent trend are obscure or undiscoverable in its earliest stages and only emerge later, when a large portion of the profit opportunity has already been used up. As for the lame assertion that Technical Analysis doesn’t work because the markets are manipulated, I will allow you the reader to be the judge of that after reviewing my calls of the past couple of weeks.

We are not, and never have been, gold or silver bugs. We are here to make money pure and simple, not fool about with dogmas and ideologies, and we are just as happy making it on the way down as on the way up — more so actually as markets drop twice as fast as they go up, and silver drops about 4 times as fast as it goes up. Thus we are perfectly happy with the latest developments.

Reprinted with permission from CliveMaund.com.

Gold is now monstrously overbought and has finally caught the attention of the mainstream media who are all over it. These factors alone are regarded as making the probability of it reversing soon very high, and if we look at the charts we can see good reasons why it should react back shortly.

On all its short and medium-term oscillators gold is now horrendously overbought. We can see that on our 6-month chart with gold now super critically overbought on its short-term RSI, with it having been critically overbought all this month to date on this indicator. Meanwhile on its more medium-term MACD indicator it is now massively overbought – these conditions being reminiscent of silver late in April. In addition it has opened up a now huge gap with its moving averages.

Although it did not qualify as a bearish shooting star, the candlestick that formed on Friday, with its long upper shadow, is viewed as an indication of exhaustion, or near exhaustion, and thus as a warning. After further consideration of this latest chart it is suspected that an intermediate Head-and-Shoulders top could be forming in gold as shown on the 2-month chart below, with the price possibly having hit the high of the Head of this pattern on Friday, after the Left Shoulder formed earlier in the month, around the 10th. The volume pattern supports this hypothesis, with very high volume going into the Left Shoulder and high but lesser volume on the rally into the suspected Head of the pattern late last week.

Read the rest of the article