Saturday 3 January 2015
Each week, we prepare a selection of newsworthy events to which the current market can
explained, somewhat. This week is no exception, save one difference, that being so many
want to see/hear some kind of look into the prospects for the year ahead. Our look ahead
starts with a rear view mirror look back at 2014. In hindsight, we began 2014 with a
positive outlook, but that quickly changed into the view that 2014 could turn out to be just
like 2013…no big rally. On that score, we were on point.
Before engaging in a review, we have abandoned providing any background news, this
week, because for us, the most important news moving forward is found in the six charts
that follow. If you are willing to accept the message the market is giving to everyone, you
will understand the folly of those who opt to make price “predictions.” Keep in mind, a
good many of the experts with the largest followings were touting a price breakout by the
end of 2014. None called for new recent lows, and if someone did, our apologies for not
knowing who you are. Bottom line: predictions are a waste of time.
To the degree that new recent lows developed in 2014, we did not expect that event. This
is a more forgiving “miss” because we were not advocating trading the market from the
long side, on paper throughout 2014. Strong recommendations to buy physical gold and
silver were a constant, on our part. While all purchases for the physical made during the
year are higher than current prices, the buy recommendations were always qualified for
reasons unrelated to the market trend being down.
Would we have held off recommendations to buy during 2014? In hindsight, yes, but
we were not prescient enough to see lower lows by year-end. At the same time, we have
zero misgivings for purchases made throughout the year just ended because the buys
are made irrespective of current price and in anticipation of much higher prices at some
point in the future. The purchases were not made for near-term profit, and we stated as
much, each time.
China and Russia remain avid buyers of as much PM product is available. Check. Strong
sales to the public remain for individual ounce coins. Check. The Obomba administration
remains as the most destructive wrecking ball for much of the world, especially Iraq,
Afghanistan, Libya, an attempt at Syria, and now its coup in Ukraine. Check. The US
continues to demand and its subsidiary, the EU, continues to follow along with sanctions
against Russia. Check. The Federal Reserve fiat “dollar” continues to lose status as the
world’s reserve currency. Check. Obomba continues to provoke Russia into some kind of
military response in order to blame Russia for starting a war. Check.
It ain’t working. There are so many stories to be told for each of the above situations, and
even more compelling stories about how Russia has given the entire West and all its
sanctions the “goldfinger.” Credit to Putin for being the single most fighter against the
elites and embarrassing them at their own [poorly played] game.
We do not know if this is a true quote, but Putin is said to have compared Obama to a
pigeon playing chess against him: “He knocks over all the pieces, shits on the board,
and then struts away as though he won.” An apt summation.
Given the wealth of stories available, we choose to focus on the most compelling one as
told by the charts. Keep in mind, when we say charts, they are a reflection of developing
market activity that tells the most accurate and current story. It is not a promising one,
as of the end of the year and heading into 2015, but it is reality, and to expect anything
else will lead to the same disappointments of 2013 and 2014. Forget the ego-driven
predictions that have all proven wrong again and again, and deal with what is.
To the monthly, we added annual and quarterly price activity. While most never look
at a monthly chart, even fewer would ever look at a Quarterly or Annual chart, but they
are substantive when looking at market direction. Why? It takes so much more time and
effort to alter their course.
The annual shows a modestly lower close for 2014 over 2013. For this it can be said the
downside momentum slowed, but there is no sign of change, yet.
After holding the 1200 area for 5 quarters, price finally gave way to the downside. As with
the Annual, the range for Q4 of 2014 was relatively small, and the close was mid-range, an
indication of some buying activity, even if only short covering. It has to start somewhere.
Bottom line assessment is that there is no indication that the market is ready to turn
around, at this point. What this means is to expect more work in the next few months, at
a minimum, as price seeks a bottom where demand will take over.
The chart comment for the month gives our view at the end of Q3 which shows the value
of paying attention to what the market’s message is as determined by reading the charts.
Most do not like to hear news that is not supportive of what they want to see happen. We
are just as eager to want to see a strong rally, but those expectations are contrary to what
the market is advertising. Consider just viewing the facts, as presented on the weekly, and
then decide if it makes sense to expect a change in trend any time soon?
For review, the concept behind Bearish Spacing is when a swing high rally fails to reach
the low of the last swing decline. It leaves a space, as shown by the two horizontal lines.
What this means is sellers were sufficiently confident that lower prices would follow that
they di not wait to see how the market would retest the last swing low. Obviously, it has
a bearish connotation that should not be ignored.
The series of LHs, and another LL is a text-book example of a down trend. When you
consider just these observable, undisputable facts, the reality of what to expect for the
near term future cannot be in doubt, and it should put into perspective any “bullish”
analysis as being significantly uninformed and very misleading.
When you look at these charts, you can better understand how all of the current event
stories are not what is driving the market, a concept many find hard to accept.
After declining from the last swing high to a recent low in just 13 TDs [Trading Days], the
question to ask yourself is, how is the market responding? Well, 21 TDs later, 50% longer
than it took to decline, price turned back lower. Is that a strong reaction or a weak one?
When you ask these simple questions about what the market is doing, you actually get an
immediate and accurate response. Price is struggling, and this is to be expected of a
market in a down trend.
37 TDs after the last swing low, how is price responding? It is now only at the half-way
mark and even lower than the 21 TD rally. The market message is very clear for those
willing to observe what is.
The silver market has a lot of work to do before any kind of prospective turnaround can
occur. Does it matter how great a shortage there may be for physical silver, for how great
the demand is for this metal? Not according to what these charts are saying. Before this
market can go up, it has to stop going down. Can it be any simpler, and can you see how
relying on shortage statistics, et al, can be very misleading, at least as to timing?
Markets do not lie, and opinions do not matter.
Same as for gold. Second verse same as the first.
If you look at the Quarterly chart for silver above, prior to the last two Qrtly bars, price was
unable to rally away from support. Axiom: weak rallies lead to lower prices. You see a
similar price activity situation on the daily chart with price not rallying away from the
15.50 area. It may hold, we are not saying it cannot. When considering what price is
likely to do from a probability perspective, it is more likely to give way, especially when
viewed in light of the trend. It is just common sense.
Is this all disheartening? It should if one is willing to deal with what the market has to
say and ignore any “expert advice” to the contrary. The reality of the underlying
fundamentals will eventually prevail, and if only half of them are real, gold and silver
will go to higher levels than ever seen previously. The market is simply saying to be
We are as bullish on the potential of both of these markets as most. However, we are
realists with the highest regard for what the market says and no one else. Expect more
of the same for 2015, at least to start, until there is evidence of a market turn. For now,
there is none.