Gold And Silver: Hold Your Nerve!

Since the middle of June, the establishments have managed to smash gold and silver down to multi month lows based upon equivocal headline news. What we saw at the open on Sunday night in Asia was something we haven’t seen in a while: An organized takedown on low volume, so much so that all technical levels in the path got crushed.
 
And on the backdrop of what exactly? NFP news on Friday added just over 100K new jobs to the market, and completely ignored the 1.7m new cases of unemployment claims (yes, you read that correctly) The unemployment rate dropped from 5.9% to 5.4%. The narrative reads that because the unemployment is improving the Fed may begin to taper sooner, and that meant the dollar got a bid.
 
But what about the GDP growth figures that came in way, way below estimates at 6.5% vs 8.4% expected? If ever there was a mover for gold and silver it was this, yet the rally halted at $1834 and $26.

Both were down over 10% and worse from these swing highs in a matter of days. Silver lost a dollar on Sunday in a matter of minutes. When you do the math on this, we are talking billions in contracts dumped. Physical bullion? Highly doubtful. Unallocated paper derivatives? Almost certain.
 
Basel III and the NSFR was supposed to end this I hear you say. So when will it end? If this occurred in thin liquidity trading hours (as it always does) then this should have been covered by a part of the globe that was compliant to the rules. I shall pick this up later.
 
There are two positives to take out of this. The first is the dollar, and the lack of follow through in yesterday’s session. All the time it sits below the 93, figure it becomes susceptible to collapse further. It is still in a major downtrend with only current conditions offering a minor trend to up. The fundamentals are offering such an unattractive investment for the dollar and attractive for the metals that the relationship is illogically skewed.

Wall Street still believes on one hand the Fed will taper as can be seen in dollar and metals prices. On the other hand the indexes are not reacting to high inflation or tapering talks as they sit at all time highs.
 
The second is the price action yesterday showed a massive hammer on both gold and silver’s negative candlesticks. When this occurs it shows that aggressive buyers have stepped in to value zones and it can signify a washout low that kicks off the next leg up.

Here at Lane Towers, we aren’t believers in many technical indicators as they simply do not work. If you follow the price action and look at what happened following the price smash, the charts signify a lot of buyers came in. The trading sessions for the rest of the week are critical. If we can recover a substantial amount of the week's losses and breach Monday’s candlestick, then this could be another significant higher low on the charts.
 
The fundamentals still haven’t changed, and are overwhelmingly in favor of the metals. Seasonality is also at play here, with August traditionally being a springboard into higher prices for the rest of the year.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Physical is the way to play this market at the moment. The springs are coiled on both and patience will be rewarded; history has proven this. Once the shorts break—and they will—this market is going higher and significantly so.

Written By: Andrew Lane