Silver Reaches 2008 Price Levels As Metals Bounce Off Key Support Levels

silver demandBill Downey: When the G-7 had an emergency meeting last month on a weekend date, I brought forward the idea that the reason for the meeting was the fact that they had temporarily lost control of the YEN and the danger that was emitting from the Bond Markets (especially the Japan market) was enough to scare them into this meeting where a coordinated effort would be needed to “STOP THE DROP”. Usually the control boyz allow one to two weeks before turning markets they have decided to manipulate so it’s not obvious.

Since that time the Yen is now undergoing its first big counter trend move since its great fall from Abenomics. For the moment, I suspect that it’s just that, a counter trend move and the overall trend of a lower Yen will return this summer.

I certainly don’t portend to understand ALL things going on but the but both major long term lows in the Yen (the chart is inverted and going down shows Yen strength against the US dollar) but I published this chart on the website the weekend after the G-7 meeting with my speculation that the control boyz had this meeting to conspire to get a hold of the Yen as the exodus from the Japan bond market had caused a massive % move up in rates and there had been two LIMIT day moves in that market. If the Yen is going to undergo a continuation of its counter trend move, perhaps gold is also close to making a medium term low and potentially beginning a counter trend move back up as well. The Yen/Gold scenario is perhaps something that should be watched over the next few months.

Gold and Yen price considerations

Getting back to this morning and perhaps reinforcing the above discussion, was the news that the Bank of Japan had decided not to extend any additional stimulus is being SPUN in the media and trade news that this is perhaps yet another indicator that the era of ultra-easy money was coming to an end. The spin to go along with it of course is the reason given for gold’s weakness today.

To further the “SPIN” today was the news that yesterday’s decision by S&P to raise the US credit outlook to stable from negative added to the argument that the Fed could begin tapering it bond buying program and the suggestion that gold is pulling back due to that concern and that the icing on the cake was the supposed good Jobs Report that came out last Friday.

We discussed yesterday on the update that in our view the Jobs Report was anything but good and gave reasons why.

This leads us to our own view that we’ve espoused is that gold’s weakness is not because the economy is improving but rather that it’s not improving and that the global stimulus is NOT working. Gold is and has been sending a message that it wants and needs GLOBAL expansion in order to get out of this 21 month bear market that it has been in and the real concern right now is the potential of LIQUIDITY drying up as the debt crisis has NOT been fixed anywhere and all it would take for a liquidity squeeze would be for an “event” that could spook the market into another 2008 scenario where a series of “margin” calls would put an “immediate” demand for cash and thus force liquidation of assets in order to raise that cash as was the case in 2008.

As far as gold, when there is bad economic news gold rallies for a day or two (just long enough to keep the SPIN going that bad news is good for gold) but it turns back down after that and it has been doing so for the last 8 months. In my opinion gold is telling us that the “reflation situation” that the central banks are trying so hard to emit is not working.

And how can it since none of that money is going into any of the world economies but rather is being put up in order to support bad debt, & to keep a last resort buyer of Bonds and Real Estate mortgages. From that perspective, up until recently the zero interest rate scenario has been maintained and another great “SPIN” we are being told is the Real Estate Market is not only in recovery but prices are moving up. We agree that prices have moved up from the lows and in some regions have actually returned to pre crash price levels. However, we’ll be very surprised if they will continue much past this year.

Until someone other than governments starts borrowing money and putting it to work in the economies and there is some type of wage increase and some sort of purchasing power gain to the majority of workers (wages) where some disposable income returns to spur demand from other than the essentials (food, clothing, shelter and energy) then the view of a global recovery which brings about a spur in DEMAND where REAL price increases can be sustained to get the ball rolling again—-until that time the real concern the markets are feeling is one that has deflationary forces behind it. And while I’m certainly in the “gold intervention” camp by the Feds, the underlying word that gold is giving us is that the REFLATION situation is NOT WORKING at the moment and the GLOBAL ISSUE of too much debt, and not enough solid employment and wage increases to the population is little by little hacking away at real demand and governments move to now TAX anything that moves, breathes, or stimulates activity is in itself deflationary as it takes more and more money away from spending on what’s really needed and that is the non-essentials that we all used to be able to afford.

Until we see an increase in the velocity of money changing hands by non-government sources and money that is hard earned and not doled out and business looking to expand manufacturing due to real demand from consumers who can afford it, the global community is in danger of another downturn and another liquidity squeeze.

Here’s a great example of what I mean and how they spin things to look good.

U.S. chain-store sales posted a gain of 2.7 percent for the fiscal month of April on a year-over-year basis, according to a tally of comparable-store sales compiled by the International Council of Shopping Centers (ICSC). This tally is preliminary and will be updated when Gap reports.

“April’s pickup in sales is encouraging,” said Michael P. Niemira, vice president of research and chief economist for ICSC. “It is most likely being boosted by a stronger household wealth effect from higher home and stock market prices. Although it was an improvement of recent months, the pace was still dampened by adverse seasonal weather. However, it is encouraging that sales still performed well despite this weather drag,” Niemira added.

Take note that the story is telling you that the boost is due to “stronger household wealth from higher home and stock market prices.”

Consider what that suggests. That people say to themselves, “well, since my house didn’t lose any resale value last month and I had a good month in stocks, I think I’ll go out and buy something. And consider also that HOUSING AND STOCKS valuation is a direct result of the FED PRINTING MACHINE suggesting that what they are doing is “WORKING.”

Perhaps the most hilarious thing about this report was that this was really good news that there was buying in such bad weather!!! Hello — its 2 weeks from summer. Ask yourself how many times in life have you said, I’m not going to buy what I want and need because the weather is not nice enough.

About the only bullish thing that can be said about gold on the short term horizon at this point is that the recent Commitments of Traders reports showed large and small spec net long positioning was still hovering around its lowest levels since 2008 and 2005, which means the threat of mass liquidation is lightened. The last time they held a net short position was in 2001. The recent price break apparently brought in some spec interest, as the SPDR Gold Trust ETF (NYSEARCA:GLD) daily holdings rose by 2.8 tons to 1,010, the first daily increase since May 29th.

The same cannot be said for silver as the open interest remains stubbornly high and from a contract standpoint, the longs have yet to be flushed out, even with a 10% drop in four minutes a few weeks ago.Finally the other pressure on the metals markets is that Chinese equity markets remain closed for a holiday through Wednesday.

Gold Chart
Gold came within 6 dollars of reaching then next support zone of 1350-1360 at the purple uptrend channel lines. It’s fighting like mad to hold the yellow downtrend line and actually slipped below 1370 today for quite a while but so far has not yielded an hourly close below 1366. At the moment gold it trying to get back above that white channel line which defines the ONLY UPTREND channel that gold has on ANY time frame as all trends have been and remain down. Gold has not even been able to get above its first daily (never mind weekly) resistance level of 1387-1394 so far. Additional resistance is the 1399-1404 area where the green 200 hour moving average resides and the next channel line resistance. Support is the 1350-1360 area and then 1337-1343. It’s possible for gold to hold here and bounce into Wednesday before resuming the downtrend but it’s also possible that gold will tank into 1350-1360 and make its low for the week tomorrow. It can go either way at the moment. But the message remains the same for the moment. No matter how much BULLISH news is thrown out the only thing that matters is price and at the moment it continues to NOT respond to any of it. Until it does, the trend is down.

If gold can get above the 1383-1388 area then a rally to Wednesday/Thursday at 1394-1399 could be in play, but other than that a close below 1366 would favor 1350-1360 as the next support point.

gold hourly price chart

SILVER CHART
We can think of no other market other than silver that would tank 10% in price to bring a total 2 year drop in total price to a 60% drop and drop below prices from 5 years prior and not have it be a major reversal point from which a rally where at least a bullish bounce in price and pattern would take place. But that is exactly what is going on. Silver has done exactly NOTHING since the drop three weeks ago other that go sideways in a choppy, sloppy, sideways bearish looking pattern. Perhaps if we would have seen an open interest drop and liquidation in the futures trade, we could view this as accumulation going on but we’re not even seeing that. Perhaps the only good thing that can be said is the situation is so ugly and bearish looking on the short term charts and the sentiment is so gloomy that perhaps we are near a bottom.

Support is at the 2008 price level of 21.35 and note how we keep bouncing off of there as bulls try and hold off the onslaught of defeated selling that is taking place as well as bears adding to positions. Resistance is everywhere at the moment and begins at 21.98 to 22.40 today. Until silver closes above 23.30-23.50 all trends remain down. A weekly close below 21.35 would activate another potential test of 19.50-20.25 in silver. In summary, the metals remain down on all levels at the moment. There is a medium term cycle due to bottom around the 21st of this month and would be doing so in a time frame where last year’s counter trend rally began (at the end of June).

In summary, its possible that the double bottom here in silver at 21.35 will prompt a rally into Wednesday/Thursday to 21.90-22.30.  Otherwise any close below 21.30 favors a move to 19.50-20.50.

silver hourly price chart

This article is brought to you courtesy of Bill Downey from Gold Trends.net

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