Friday, February 10, 2006

 

Gold, Silver Touch Limit Down

Dow Jones Newswires reports on another wave of precious metals selling. "For the second time this week, a wave of fund and other speculative long liquidation knocked the New York precious-metals complex sharply lower Friday. Most of the metals managed to hold just above the lows that were reached during a liquidation sell-off that had knocked gold nearly $20 lower on Tuesday."

"However, April platinum futures were an exception as they fell through Tuesday's bottom to its weakest level in three weeks. April gold settled down $14.60 to $553.50 an ounce, while March silver tumbled 28 cents to $9.38 an ounce."

"'There was continued profit taking by those who didn't get out on the first time down,' said Don Tierney. 'But the activity does seem to be spotty.'"

"Much of this liquidation was from funds, he and others reported. 'It's a Friday. Some people wanted to flatten out their positions and take another look at it Monday, which is normal,' said Tierney. 'That was in both gold and silver. They are following each other pretty closely.'"

"Weakness first set in overnight as the Japanese yen strengthened, said George Gero. In response, the Japanese started selling metals and gold hit its daily yen limit-down on the Tokyo Commodity Exchange."

"Selling snowballed during New York hours. 'You had everyone walking through
the same door at the same time, trying to position themselves out first,' said Gero."

"As April gold fell back through $560, he said, 'nobody wanted to be the first
to buy on the way down.' Much of the liquidation may have been because market participants felt traders were already so heavily long, said Gero."

"'It's been over-owned,' said Gero. 'A lot of retail has been coming into the metals. There is concern when you have a lot of retail that the metal becomes over-owned. They (those booking profits) just want to be temporarily out.'"

"April gold bottomed at $550, just above Tuesday's bottom of $548.50. March silver held at a session low of $9.28, a half cent above Tuesday's bottom."

"As was the case earlier in the week, the gold held above the 50% retracement of the rise from the Dec. 21 low of $496.50 to last week's $579.50 high, pointed out Tierney. This support lies around $538. The 50-day moving average lies a short way above this at $540.20."

"In March silver, the 50% retracement of the rally of the December 21 low lies
around $9.12. The 50-day average is at $9.064."

"The Platinum Group Metals also fell sharply on fund liquidation, with the losses accelerating as sell stops were triggered, said a trader. April platinum tumbled $33.80 to $1,040.10 an ounce and March palladium lost $19.80 to $284.65."

"March palladium remained just above Tuesday's $281.50 bottom, holding at $283. However, for the second day this week, it fell through the 50% retracement of the December-February rally, which was just above $287. The 61.8% retracement of the rally from the Dec. 22 low to the Feb. 3 high is around $277.70. It's 50-day average is right around this, at $277.65."

Comments:
This is where it can start to get interesting. I can remember back in the 80's, when these metals would be limit down one day and limit up the next. If a commodity is going to move into new territory, this kind of volatility is neccesary to shake out the faint of heart.

I suggest paying attention to the technical stuff in times like these. Look for a market 'floor.' If you don't know what is significant about the 61.8% retracement, I just became an affiliate of a firm that can explain that. Stay tuned.
 
If a commodity is going to move into new territory, this kind of volatility is neccesary to shake out the faint of heart.
# posted by Ben Jones : 1:58 PM

Ben, I too remember the 80's and Pm's. I think due to the fact we are a nation now awash in debt with no end in sight,the volatility will be even greater.That is different than the 80's. This is not a game for the faint of heart and they will be flushed out in a hurry. By the time the general public starts paying any real attention to PM's the game will be truly "be afoot"
 
That could be true, Ben.
But, the volatility is huge at the top, too. The strong hands who wants out sense the top and buy a little to sell a lot. (Volatility)
I think it can be the case and we have long setback ahead of us.
At least I hope it is. I still don't have enough of cheap mining stocks.
 
Gold isn't the only commodity that is showing volatility right now. Anybody been paying attention to oil? I got careless last week and didn't take some profits off the table, as a result I got hurt pretty bad this week. "Buy and Hold" is one of the biggest fallacies in investing. You have to be paying attention to your positions.


Of course, oil is in a strong bull market like gold, and will shortly begin its upward trend. Unlike gold, which is a mainly bought and stored, oil is used up.
 
I think its important to emphasize that the fundamentals which have pushed oil and gold upwards over the past year haven't changed at all. The Middle East looks worse than its ever looked (at least in my lifetime) and inflation looks ready to positively soar.

Both points make me pretty confident that the analysts have it right: This is profit taking. Today's data on the trade deficit is positively alarming, and the more I read about Iran it looks decreasingly likely that the security council will be effective.

(China has over $75 Billion in new oil contracts with Iran and is pursuing multiple pipeline deals. Russia is selling Iran billions of dollars woth of airplanes, weaponry and nuclear reactors.

Europe is between a rock (their security interests) and a hard place (their energy interests) and in the wake of the Russian/Ukranian pipeline fiasco it looks increasingly likely that they'll bow to Moscow. All of which makes military action by the US and UK all the more likely.

(And we all know what's up with consumer spending, the housing bubble and foreign dollar purchases.)

This seems like a hell of a great opportunity to increase positions in oil, gold and mining stocks.

ps: Interestingly MNEAF went up all week.
 
I like many of you hold and trade PM and energy stocks. This artical,I found interesting. Some points in here that I did not know(you learn until your dead). Sure looks like volatility is going to be heavily upon us.


http://www.gold-eagle.com/editorials_05/norcini021006.html
 
Bill Fleckenstein's site access is free this week ("MSN" is the login and "MSN" is also the password. He had some interesting commentary on the precious metals and the market action this past week.

http://www.fleckensteincapital.com/dailyrap.aspx
 
Over at PrudentBear, Doug Noland had an interesting analysis on the Yen carry trade and how it may be prolonging the credit bubble, (as well as inflating the commodities markets):

"It was curious Tuesday and again today to observe the tight interplay between various markets. One can be pardoned for sensing that a rally in the yen was the catalyst for selling in a broad range of markets including energy, precious metals, commodity currencies, bonds, and global equities. There is certainly good reason to suspect that the “yen carry trade” (borrowing in yen and/or shorting low-yielding yen-denominated securities and using the proceeds to finance holdings in inflating markets) has ballooned to massive proportions and has, in the process, become a Seminal Source of “Blow-off” Finance."

http://www.prudentbear.com/creditbubblebulletin.asp
 
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