This is a sample entry from Kurt Pfafflin’s weekly precious metals market commentary newsletter, The Gold & Silver Speculator, published on October 29, 2012.
OCTOBER BLOODLETTING HITS NEW LOW BUT NO PANICKED LONG LIQUIDATIONS (YET?) HISTORICALLY STRONG NOVEMBER JUST AHEAD: LIGHT AT THE END OF THE TUNNEL FOR BULLS or IS IT JUST THE BEARS’ FREIGHT TRAIN BARRELING DOWN THE TRACKS?
The Gold & Silver markets recovered Friday morning or bounced slightly off their overnight lows following a US Q3 GDP print that beat expectations (2% Actual vs. 1.8% Expected), although if you dig deeper into the numbers you’ll find that a third of the increase was actually contributed by “Government Consumption” which is the biggest rise in gov’t spending in 3 years.
The heavy metals, hard currencies still appear to be working through their October consolidations: This month, which is seasonally the worst performing month of the year, has been true to form as we’ve seen Gold come off nearly $100 (or -5.5%) since hitting a yearly high of $1798 on the 1st of October while Silver has been knocked down nearly $4 (or -11%) from its high just above $35.
OCTOBER FRIGHTFEST (FOR BULLS):
DECEMBER GOLD (GCZ2)
1798.1 HIGH (10/01/12)
1698.9 LOW (10/24/12)
DOWN -$99.2 PER OZ (-5.5%)
DECEMBER SILVER (SIZ2)
35.445 HIGH (10/01/12)
31.540 LOW (10/24/12)
DOWN -$3.905 PER OZ (-11.0%)
Technically speaking, it’s important to remember that even the strongest bull markets – which Gold and Silver clearly are, get overbought or ahead of themselves. No market goes straight up or down. Since the Summer Doldrums/June lows were put in at $1528 Gold and $26.21 Silver, they’ve both put up massive runs to the upside – Gold rallied +$270 an ounce (up+ 17%) and Silver tacked on +$9.44 (up +36%). These rallies came to an abrupt end on October 1st and both markets have experienced steady selling pressure or weakness throughout the month.
The reality is that anytime you get a pullback like this, it creates fear and uncertainty amongst both traders and investors. Besides the potential opportunities it creates, the volatility also forces participants to ask themselves: What side of this market should I be on? Or should I just be out/flat (no position)? How far will this selloff go? Where do we go from here?
Many are familiar with the phrase: “When in doubt, get out.” Despite the October price pullbacks – which would typically force many leveraged market participants out of their positions, from the latest COT numbers, it appears that both sides of the trade are pretty well dug-in and aren’t heavily liquidating positions, so it looks like both the Bulls and the Bears remain convinced they are right on future direction and thus far, opting to ride out the moves lower.
I view these downward moves as simply part of a typical, healthy consolidation process. I don’t believe we’re going to be falling much lower into a deeper correction.
Over the past 11 years, the month of November has been the best performing month, so we won’t have to wait too long to find out whether that will continue to be the case or not.
On a technical basis, for Gold if the $1698/$1700 low doesn’t hold up, I see the $1662 level, which is where the 50% Fibonacci Retracement level meets up with its 200Day Moving Average, as a critical level of support that would likely see strong buying come in.
For Silver, I think the $30.75/$31.10 area should see good support as that is the confluence of its 50% Fibonacci Retracement level and its 200Day Moving Average.
There is quite a bit of uncertainty affecting all the markets right now given the upcoming US Elections and looming Fiscal Cliff, but I think the precious metals are still well-positioned for massive moves higher into the first 2 Qtrs of 2013.
If you look at what’s going on in Europe, their nearly intractable economic situation continues to devolve or manifest itself into outright chaos. With daily strikes and even riots breaking out in Greece and Spain, its not a surprise that capital flows continue as frightened depositors flee their banks looking for a safe place to hide/protect capital. These problems are deep and are likely to intensify: unemployment in Spain has reached extreme levels – it just hit 25% while the ECB average remains elevated above 11%.
We’ve seen credit downgrades of Spanish banks and regions, credit downgrades of French banks and forecasts for future GDP growth cut. And they’re not alone either –rumors were flying last week that the Fitch credit rating agency is about to downgrade the US too.
In Japan, they’ve got their share of problems too, joining the US with their own version of a potential Fiscal Cliff approaching. There are expectations that the Bank of Japan must take aggressive monetary-easing later this week when they meet with some analysts estimating an additional 10 Trillion Yen (or $125Billion USD) being introduced.
In China, we’re seeing record growth in both industrial and investment demand in the precious metals – especially silver. In India, we’ve got the festival season and Diwali which is typically supportive for gold and silver.
Central Bank demand continues to take away physical bullion supply from the markets too. We saw Turkey add 7 Tons of Gold to their holdings and Brazil added to theirs for the first time since 2008, so there’s no let up there.
There’s an extraordinary development in Germany developing as to their gold holdings too as its citizens recently began a campaign to force their Bundesbank to open up or come clean about their gold holdings as to where they’re held (actually held primarily in vaults at the Fed Reserve Bank in NY and Bank of England), and demanding to repatriate any foreign-held bullion from overseas central banks back to vaults in Germany.
Finally, the Gold and Silver components of the Dow Jones/UBS Commodities Index are getting reweighted or increased by over 2% which Credit Suisse estimates could generate an additional $1.6 Billion of money flow to these precious metals (split about evenly between them) as funds reallocate assets to stay in tune with the Index.
So as always, there’s a lot going on in these markets and a lot to look forward to. The next few weeks and months going into 2013 should be a very exciting time to be involved in the Gold and Silver markets.
Please refer to the charts below for further commentary and analysis.
*Look for email alerts/market updates should conditions warrant or if/when environment allows
IMPORTANT UPCOMING DATES ON THE CALENDAR THIS WEEK/NEXT WEEK:
OCTOBER SILVER (SIV2) FUTURES EXPIRATION/LAST TRADING DAY
OCTOBER GOLD (GCV2) FUTURES EXPIRATION/LAST TRADING DAY
NOVEMBER GOLD & SILVER (GCX2 & SIX2) FUTURES – FIRST NOTICE DAY (FND)
Any long November Gold/Silver futures position holders must exit/liquidate their open positions PRIOR to FND (ie before the CLOSE of trading on Tuesday 10/30/2012) unless they intend to Stand For Delivery as that is when the CME/COMEX can begin assigning deliveries to those long futures contract holders.
“ROLLOVER” – IN ANTICIPATION OF FIRST NOTICE DAY (FND), TRADING VOLUME & OPEN INTEREST HAVE ALREADY MIGRATED TO THE DECEMBER FUTURES CONTRACT (GCZ2 & SIZ2)
DECEMBER GOLD (GCZ2) – WEEKLY CHART
DECEMBER SILVER (SIZ2) – WEEKLY CHART
|PIVOT POINT SUPPORT/RESISTANCE LEVELS (WEEKLY & MONTHLY) & GOLD SILVER RATIO (GSR)|
|DECEMBER GOLD (GCZ2)||10/29/12 – 10/31/12||DECEMBER GOLD (GCZ2)||OCTOBER 2012|
|WEEKLY R2||1746.3||MONTHLY R2||1849.9|
|WEEKLY R1||1729.0||MONTHLY R1||1809.4|
|WEEKLY PIVOT POINT||1713.8||MONTHLY PIVOT POINT||1749.5|
|WEEKLY S1||1696.5||MONTHLY S1||1709.0|
|WEEKLY S2||1681.3||MONTHLY S2||1649.1|
|DECEMBER GOLD (GCZ2)||COMBINED|
|MONTHLY PIVOT POINT||1749.5|
|WEEKLY PIVOT POINT||1713.8|
|DECEMBER SILVER (SIZ2)||10/29/12 – 10/31/12||DECEMBER SILVER (SIZ2)||OCTOBER 2012|
|WEEKLY R2||33.01||MONTHLY R2||37.17|
|WEEKLY R1||32.56||MONTHLY R1||35.79|
|WEEKLY PIVOT POINT||32.05||MONTHLY PIVOT POINT||33.87|
|WEEKLY S1||31.59||MONTHLY S1||32.49|
|WEEKLY S2||31.08||MONTHLY S2||30.57|
|DECEMBER SILVER (SIZ2)||COMBINED|
|MONTHLY PIVOT POINT||33.87|
|WEEKLY PIVOT POINT||32.05|
|WEEKLY S2||31.08||GOLD SILVER RATIO (GSR)||AS OF 10/29/12|
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