Gold And Silver: Sticking With The Charts

"If you want to know your past, look into your present conditions. If you want to know your future, look into your present actions." ~Buddhist Saying.

The cliché for that is, "you cannot know where you are going until you know where you have been." One of the most direct applications of this wisdom of the ages is found in charts.

Left to the realities of supply/demand factors, gold and silver would be considerably higher already. We can think of no other commodity situation with unprecedented demand and shrinking supply that has done anything else than drive price much higher. The fiat cartel will not allow reality to supplant their massive wealth-transfer Ponzi scheme, as it enters the final stages like a cancer consuming everything until inevitable death results from this banker faux-Kabuki theater.

This leaves us with monitoring the measure of price "reality" found in the charts. Lacking an alternative, the COMEX and LBMA remain the questionable arbiter of last resort to see how the marketplace is assessing what "value" to use in determining the current price for gold and silver, as derived from the exchange paper markets. Ultimately, therein lies the most important element, that of timing.

Fortunately, charts are a good thing, providing a past as a guide and pointing to a likely future direction.

Charts are the distillation of all available information, including inside information, even manipulation. It is okay not to be able to understand or read them, but it is a huge mistake to dismiss them. You see the results that include the most highly informed, as well as those with the highest degree of skill in trading. You get a front seat on the battle line, observing first hand what is going on. Too few realize the importance of the valuable information a chart can and does convey.

Some of the finest and most highly regarded minds in the world of PMs have been saying metals are going higher, most particularly over the past few years. The charts have "said" otherwise, and that has been the correct read. Charts are infallible. Why? They are the market. They are the mirror of what the war between supply and demand is. They show the intervening battles between buyers and sellers, and everyone gets to see the results, as they develop, each and every day.

If demand is greater than ever; if supply is shrinking, relative to demand, yet price is and has been moving lower, then the problem is what almost all recognize, manipulation. The charts for both gold and silver have been steadily reflecting that fact. What that fact is telling the world is that the manipulators have been in control, and still are.

If gold is going substantially higher price levels, it must first show an ability to rally above certain resistance levels. That has not happened, in large. The same holds true for silver. If you read about all the reasons why both metals should be at much higher levels, weigh that information with what the charts are revealing.

If you want to make rabbit stew, first you have to catch the rabbit. It you want to see prices go higher, first you have to see them stop going lower. It could not be any simpler.

Within this context, here is our read of the charts.

The reason why the trend is mentioned so frequently is because it tells you if the ocean tide is coming in or going out, as it were, and you do not want to be opposing the direction of prevailing strength. In gold, the trend remains down, but evidence is building that shows there are signs of weakening.

The simplest definition of an up trend is a series of higher swing lows and higher swing highs. The most important information in the weekly chart, after acknowledging the trend is down, it the first higher swing low since the 2011 lows. This is showing factual evidenc of a change in market behavior. While the trend is down, it has weakened, but not ended.

What would change the trend? A higher swing high above the August high of 1434. In a down trend, the onus is on buyers to demonstrate a change in market behavior, and this is one of the measures.

If you notice the bars since that August swing high, they have remained relatively large and overlapping, at the same time. In making that observation, we learn buyers have been more active and responsive to selling activity. The proof of that comes from the outcome: a newly established swing low. Price closed at the highest weekly level since the opening week of September. This is a red flag for the bears.

Weekly charts are not used for timing. We need to look at a daily chart for more detail.

Charts can be a thing of beauty when they capture an ongoing synergy that procedurally leads one in a certain direction, and with a purpose. There are a few aspects found in this daily chart.

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On the left side, there is a clustering of closes, at "A." A clustering can lead to a brief pause before resuming the previous trend, [down, in this case], or it can lead to change, as it did here.

After the strong rally bar and swing high, just above 1340, the character of the ensuing correction was labored, taking 11 trading days to retrace a five-day rally. This is a clear message from the market, for anyone to see, although not everyone does despite it being there.

The retest correction ends at "B," and another higher rally follows. What we can now see are two points of support for future reference. After that rally, another correction developed, and its decline stopped at "C," the same price level as "A" and "B." In knowing the past, the market was providing important information in the then present, at "C."

We see the rally that followed "C" was weak, and from that, we could expect either another retest, or even a stronger trend lower. Another clustering of closes and overlapping bars developed at "D," slightly lower than "C," but still in a support area, which we know from knowledge of the past.

The difference between the stronger quality retest at "B" versus the weaker retest at "D" comes from knowing the trend. At "B," we were seeing the early stages of a trend higher. At "D," price has obviously been trending lower, and it takemore effort to stop and reverse a down trend.

What we continue to know from the past is even though retest "D" may have been lower than "C," it is still at previous support "A" and "B." We comment that support is an area and not a single straight line or single price level. One has to be more flexible.

Would the "D" cluster be a pause, or would it reverse the down trend, while at support? The answer came on 17 October when price rallied higher on a wide range bar and also on increased volume, "E." At the same time, the trend line off the August high was broken.

After the rally at "E," the market provided more important information in the 3 day correction sideways, a rally ensuing on the third day. Note how little price corrected over that 3 day span. Weak corrections lead to higher prices, and the market's message did not disappoint.

After the next rally, 4th bar from the right, there was only a one day correction, and price began to resume its current love higher. So far, the lack of a downside counter move has been a sign of strength, and price may be absorbing at the minor failed high resistance at the end of September.

The more important resistance level, at least on the daily, is just under 1380. How price gets there and how it reacts to that potential resistance level will provide additional market feedback that will reveal the character of the trend at that point.

The futures are now providing reason to be trading from the long side, that is, the paper market. The other known fundamental factors have already been screaming for purchases of the physical metal, without any question.

The point is to use a chart to provide a context for viewing fundamental considerations.

Silver has been constant in its message since the August breakout gap. Knowledge of the trend, [past], tells us not to expect too much from rallies until there is proven change. From that gap higher rally, a swing high formed two days later. The retest correction of what was a 3 day rally took 7 days to unfold. This is the market telling us price is having an easier time going up, and a harder time declining.

The chart provides more information by showing the labored decline stopped at the gap breakout, [a support point], and a higher swing low was created, a necessary first step in a change of trend. We are being educated about the nature and character of the market via the chart pattern behavior.

Similar to the daily gold analysis but sharper in subsequent support areas, silver has also been sending a message of change. There were two consecutive labored corrections after a rally, and both are signs of buyers being more in control over sellers who are having more difficulty moving price lower. In a down trend, sellers should be in greater control and be able to move the market more readily.

The two failed retests stopped at previous support. By taking that knowledge of the past and applying it to the present, we are positioned to make a more informed decision about the future. There are both rhyme and reason to be found in the charts. Nothing is hidden. Everyone gets to see the developing information at the same time.

All we can say for certain is that the trend has weakened, but it has not ended. Still, we are being given clues on how to participate from the long side, using close stops. The last 4 trading days appear to be absorbing the effort of the sellers. If that is the case, expect to see higher prices next week.

The fundamentals may be as bullish as can be. The charts are sending a different message, and that has been the case since the 2011 highs.

Written By: Michael Noonan