Sunday, May 5, 2013

Gold and Silver: Sentiment Reversal is Inevitable

The usefulness of sentiment's stealth crystal ball is about to be revealed to the litany of unsuspecting precious metal bears and skeptics who have convinced themselves that gold's bull market is either over or, at the minimum, in need of lengthy ongoing retesting, restructuring and consolidation.

This article will bring us up to date as to the degree of current bearish sentiment regarding both gold and silver using no fewer than 5 sentiment indicators (with 9 illustrative charts), as well as provide the reader with an opportunity to observe the price outcome of previous bearish extremes using these sentiment indicators.

When we begin the sentiment indicator discussion we will look at charts of the put/call volume ratio (options) of SPDR's Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV), then examine Hulbert's Gold Sentiment Index, followed by the Blees Rating, then gold's Commercial and Non-Reportable (futures) traders positioning detailed in the most recent Commitment of Traders Report (COT) from the CFTC, and conclude with a daily gold futures price chart that includes the corresponding readings of the Ulcer Index indicator.

But first, let's briefly consider the concept of investor sentiment. 

My observation is that sentiment's crystal ball, particularly when observed at an extreme, works reliably despite conflicting and clever arguments of either a technical or fundamental nature, and plays the ultimate trump card in foretelling a market's reversal of price direction. 

Sometimes the occurrence of a high volume "capitulation selling" event provides the most obvious observation of sentiment exhaustion. But there are numerous other means to assess this phenomenon and we will get to these shortly. 

Sentiment extremes, simply put, tell us that there are too many traders at one end of the boat and therefore the boat is about to tip over. Sentiment can strongly suggest that the trade, as some say, has become "crowded". When someone finally yells "fire" in the "crowded" room there are so many of the market's participants motivated to get out the same door and in the same direction that most get trampled - unable to reverse their trade fast enough. 

Another way of characterizing a sentiment extreme is to say that the trade simply runs out of buyers or sellers, as the case may be. The extreme price momentum in one direction "exhausts" itself of all available ammunition to continue the trend and is sometimes signaled when someone yells "fire" in the "crowded" room, but often comes to a conclusion unrecognized by most traders as price reverses direction in an unassuming manner.

Yet another saying is "when everyone is thinking the same thing, then no one is thinking". The sentiment indicators we will look at today will give us a clear sense as to whether this saying is potentially a significant and foretelling factor in future precious metal price movement.

And yes, there are indeed two players for each trade - the buyer and the seller. In our present precious metals situation, this leads us to consider the concept of shares moving from "weak" hands to "strong" hands. 

The Claude Resources (CGRshares I have been accumulating and holding with a considerable draw down are in "strong hands". Barring some unanticipated but significant company news, I have resolved to not sell any of my position even if price should continue to fall from the current $0.30 per share to $0.10. 

However, as Claude Resources share price has fallen from about $1.00 last September to around $0.60 last January and just a couple months ago $0.50, obviously there have been too many shares of CGR still held by "weak hands". This will change because when the last "weak hand" is willing to sell their last share at this incredibly exaggerated market price, that obviously, will be the bottom.

You may have heard comments when a particular market bottoms and then begins to trade higher and then continues to trade even higher yet, despite "bad" news, the assertion that the bullish price movement seems to make no sense - that it cannot possibly be sustained. At this time it appears to nearly everyone the common sense question to ask is how "bad" news that used to cause a market to go into free fall now seems to have absolutely no negative effect? And to observe that as this market continues higher, it always leaves behind those traders stuck in pessimism to declare that the market is "climbing a wall of worry". That is, the "bad" news continues in the media, yet this particular market's price reversal continues upwards.

These thoughts are precisely what make this article's argument dead on target, in my opinion. That is, sentiment at extremes can and often does trump both technical and fundamental analysis. We are about to examine a number of these sentiment indicators which will leave little doubt that the precious metals market is presently at a sentiment extreme of historical proportion. 

As markets usually swing from one price extreme to another, and markets usually swing from one emotional extreme to another (such as fear to greed), I believe the following sentiment indicators and their readings literally guarantee the continued reversal of gold and silver price to the upside.

So let's now take a look at the 5 sentiment indicators I have prepared for detailing the current gold and silver market sentiment and see what they are telling us. 

We will begin with the put / call volume ratio of the options trade of the SPDR Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV).  Charts courtesy of Schaeffer's Investment Research.
Click on any chart to ENLARGE
The red line in the charts are the ETF's price movement over the recent 2 years (GLD above, SLV below). The blue line is the put / call volume ratio. This considers the trading day's volume of puts traded and is divided by the volume of calls traded. Generally, the higher the put / call ratio, the more bearish traders are about the ETF's likely price movement, while the lower the put / call ratio, the more traders believe the ETF is bullish and going to rally higher.

Undoubtedly you have noticed that both charts reveal that the put / call ratio is at the highs of the past two years; meanwhile price is at the lows of the past two years. I will leave it to you to observe the repetitively flip flop relationship between this sentiment indicator and price movement. For me, anyway, this indicator leaves little doubt as to the upcoming direction of GLD and SLV

Next up is the Hulbert Gold Sentiment Index. This chart courtesy of Mark Hulbert's Newsletters. The chart that follows this first chart is courtesy of Short Side of Long.

This first Hulbert Gold Sentiment Index chart shows us that gold sentiment at present is even more depressed than at gold's infamous 2008 low.

The second chart offers a sweeping view of gold's price movement over the past 17 years, as well as the locations of noteworthy extremes of bearish sentiment. And incredibly (and once again) our current bearish sentiment breaks all previous records with a reading of -31%. 

Now we will turn to the Blees Rating with another pair of charts. The Blees Rating is simply a calculation that uses the COT report data on the positioning of commercial traders in comparison to their positioning 18 months previously. 

The first chart is one that I made. It looks at the price movement of gold since September 2008 in the upper portion of the graphic, and displays the corresponding Blees rating in the lower portion of the graphic. The Blees rating this week, for the second week in a row, is 100. The green bars I added to the chart are intended to draw your attention to price action once a Blees rating of 100 is triggered.

The red bar I added connects a Blees rating of 99 with price just before our infamous episode of a two day price crash in gold. Though I neglected to add another red bar in September 2008, you will notice that nearly the same thing happened at that time. That is, the commercial traders bellied up to the bar with a reading of 94 then apparently and correctly smelled a rat. They backed off and price indeed made one final swoon. Then in early November 2008 they bellied back up to the bar and held a 100 Blees rating for 2 consecutive weeks followed by another week at 99. They nailed the true bottom. I have no doubt they have done it in 2013, as well.

The following chart of $GOLD courtesy of SmartMoneyTrackerPremium details the locations of the maximum Blees rating since 2003.

Our next pair of charts looks at the positioning of gold futures traders as reported in the most recent Commitment of Traders (COT) report. Both charts are courtesy of GotGoldReport by Mr. Gene Arensberg. 

First up is the commercials (dark blue line) and their net positioning of gold futures contracts since 2008. The price of gold is shown in magenta

This group of traders is considered the smartest of the players and are hedgers by nature. It is indeed rare to find their net positioning anywhere near to just slightly short, as they are now positioned. Incidentally, they are now positioned exactly as when they correctly called the 2008 bottom.

In Mr. Arensberg's accompanying dialog with these charts he noted that the commercial traders method of operation is to add shorts as price rises and add longs (or sell shorts) as price falls.

But interestingly, as gold has been raising $150 over the past two weeks, the commercials have been doing just the opposite of their norm. Instead of adding to their shorts as price has gravitated higher, they have reduced their shorts and added to their longs.

Yowzer! My take is that the commercials are essentially saying to the market, "bring it on". 

Now for the chart of the little guys trading gold futures, otherwise known as the non-reportables.

You can see that for the first time since 2008 this group (sometimes also known as the 'dumb money') has a net position that is just barely short (below ZERO). In effect, this group does not have any skin in the game and that has not been seen before. They have been suckered into losing their net long position and will have to buy, buy, buy when they figure out the trend is up.

And finally we conclude our pondering of 9 charts with this daily chart of gold futures (/GC) from 2007 and forward. 

I created this chart and have added in the lower panel the Ulcer Index indicator. This is a volatility indicator that measures downside risk. The higher the indicator reads the higher the risk is considered to be if one continues to hold 'Old Turkey'. 

From a sentiment point of view, the higher the indicator reads the scarier the ride for the long investor. I looked at this indicator on the daily gold futures chart back 20 years and I can tell you what we just experienced was the first place roller coaster drop of the past 20 years. If you still have your lunch (like me) you are likely qualified as a "strong hands" investor.

So there you have it. Sentiment on GLD and SLV options is crazy extreme, Hulbert's Gold Sentiment Index reveals sentiment is not only more bearish than the 2008 bottom - it's more bearish than anytime in the past 17 years (at least). The Blees Rating has been at the max of 100 for two consecutive weeks. The smart money commercials of the Comex gold futures market, despite the $150 rally we have had off the capitulation low a couple of weeks ago are not being shy. Price has been going up and they have just added to their long positions and reduced their short positions. Meanwhile the non-reportables have played themselves right off the field and will have to become buyers to get back in the game. And finally, the Ulcer Index confirms that gold has taken a hit that should have left EVERYONE running for the door.

You know, I don't make this stuff up. And after putting about 10 hours non-stop into making this article what it is, I have nothing more to say other than encourage you, another time, to consider the evidence that sentiment plays a powerful role in the trading markets and that if there was a better precious metal setup than the one we presently have - I simply do not believe it.

Best always,



  1. Thanks, John. It is great to see all this data pulled together.

    People keep talking about the technical chart damage and that it must be repaired over a long period of time. Perhaps. But maybe such "damage" must be repaired with a long recovery process if the chart damage occurs at the beginning of a move down. It seems to me that when it comes long after the decline began, it is simply a capitulation and the end of the down move - not the beginning.

    I am anticipating a robust up move, and I anticipate it will soon commence.


  2. Great work, John! And, I know it was real work. Thank you. I just hope "the market" is convinced.

  3. Really interesting article. I don't see another big move down - more likely a gradual ascent to 1600 by the end of the year.

  4. Thanks John. Nice article as always. Bruce

  5. Thank you Joe, Loren, Anon and Bruce. A moment of feeling appreciated makes
    my effort to offer a contribution worth consideration all worth it for me.

    I wrote an article some time ago (July 26, 2010) that focused on sentiment. It was
    published at quite a few places, and here is a link:

    By my standards, which are admittedly not as high as others, I thought this was a great article about sentiment. I was a month early in correctly calling the SPX runaway from 1050 to 1350 and I absolutely nailed Day 1 of gold and GDX's next humongous Intermediate cycle.

    My viewpoint about sentiment is that there are times - at extremes that can be measured, observed and recognized - that fundamental and technical considerations are just plain hot air. I believe gold and precious metals including miners are at that point right now.

  6. Yet another excellent piece of research and presentation. Thanks so much!

    The Ulcer Index does explain why I have been feeling a shade anxious even as I have refused to sell a single damn ounce or share of gold and silver investments.

  7. John, All I can say is "WOW"! As one of the "small fish" in this sea of monumental extremes, I would be a lot worse off without your knowledge and guidance. I look forward to your reports and appreciate your skills more then you know. Thank you, Mike

  8. Great work. Hoping together for the best outcome.

  9. I appreciate ALL your work and the effort that goes into it. Kindest Regards.

  10. John,

    I am afraid you are dead wrong here. My work indicates deflationary #$>storm is about to hit again. Miners have given an extended warning to the bulls. SnP500 is getting ready to surprise everyone.

    Safe trading to all.

  11. john, what about the dollar is it still in its early stages of a major decline?

  12. Anon #1 - you are afraid I am dead wrong? OK. With sentiment being what
    it is at the moment, your outlook is apparently in agreement with the
    crowd. If you would like me to take you or your comment seriously then
    give us your name and a link to where we can examine your 'work'. I'll
    give it a read and then we may have something to discuss. But really,
    telling someone they are dead wrong anonymously and additionally offering
    nothing of substance as proof is kinda a waste of time (yours and mine).

    Anon #2 - yes, the dollar is still in its early stages of a major decline.
    The current daily cycle failed on day 10, topped left-translated on day 6
    and is now bouncing up off the day 11 failure but I expect it to begin to
    roll over quite soon. The dollar's previous daily cycle was also a failed
    cycle, albeit right translated.

    Also, the $DXY TSI (25,13) 60 minute chart has an unusual inverse negative
    divergence at present. In this case, the TSI has made a higher high while
    price has, so far anyway, made a lower high. This particular setup has been
    in place for the past 25 hours. Anyway, this is a SELL signal. It says that
    the TSI got it wrong - that lower price is coming next. For the past 4 hours
    anyway, that is exactly what has been happening.

    I wrote about these inverse negative and positive divergences some time ago.
    Here is the link:

  13. One hundred percent agreement, John. Can there be anything better as a predictor of a rebound than your last chart, the Ulcer Index? I haven't sold a an ounce of gold and have been a buyer of silver for the last four months. Neither I -- nor anyone else --can predict when the precious metals markets will turn, but I firmly believe they will in the not distant future.

  14. Absolutely outstanding work. Thank you. !00% agreeement.

  15. Hi John
    I've just read again your IAG advice with all these technical analysis and your $1900 gold price in 2-3 months
    Why do you think didn't work for IAG ?
    Could it be wrong again?

  16. Anon - that is a good question and a fair one.

    What is your answer?

    My answer is that I did not realize how desperate some big player(s)
    were to load up on bullion. Unfortunately, I am not privy to the plans
    some have to manipulate the gold market. For some entity to drop 400 tons
    of naked shorts on the market all at once is manipulation pure and simple.
    And illegal I might add.

    Let's do a couple back of the envelope calculations:

    gold $1500/ounce X 16 ounces per pound X 2000 pounds per ton X 400 tons =

    I get $19,200,000,000 That's $19.2 Billion dollars

    And the short seller who pocketed $19.2 Billion dollars from the sale of those
    futures contracts had how much gold in their vaults to sell?

    How much?


    Heck, sell $19.2 Billion of something you don't have and then rebuy to cover
    your trade in a day or two or three or whatever, and tell them where you would
    like the bullion delivered for you is, uh, ...... market manipulation and far
    as I am concerned something only a crook would have the gall to do.

    Anyway, I still think my projections were generally correct, but obviously not
    when the market is allowed to be manipulated.

    Your next question is interesting - can this happen again? Trying to be open
    minded and knowing the concept of a free market has not been working lately,
    sure, I am willing to concede this could happen again......maybe.

    However, this time I am aware of two powerful forces likely to not make this
    possible. One is the continued fall of the US Dollar that I think is not far
    from going into something of a free fall. The other is the positioning of the
    commercial traders who basically have the shorts by the balls and are ready to
    use them for rocket fuel.

  17. John,

    Gold is going to 1,100 first. Take a look at this serious piece of global macroeconomic economic analysis.

    There is telling you why the dollar will keep going up, gold down and the S&P 500 up as well (at least for two more years).

    Do not get me wrong I am also a gold bug but we will have to wait at least 2 years to see new highs in gold. Gold will likely test the 1,100 support sooner than later.

    Did you realize that all the comments here are gold bullish (except for one)? It does not look like a bottom to me. I do not see any panic or people worrying about their holdings. Or maybe everybody reading Gold-Eagle or 321Gold is right mmmmm, interesting.

  18. If as you suggest gold hits $1100 given the demand for physical now - how many will be backing up the truck? Given the ability to paper short the market in 100's of tons I doubt the price will go up until here is no physical available. Maybe silver will get there first.

    1. SW - kinda a brain teaser, but what if the commercials have rounded up a few $Billion and agreed with themselves to buy every short put on the market, should there be another manipulation attempt? I tend to think the commercials are positioned to play hard ball and could well have a plan up their sleeve as well. Anyway, as the dollar looks ready to continue lower my point is probably moot. The falling dollar could just make road kill of the manipulators. When they begin to figure out the trend has changed it's going to get very exciting (and likely volatile).

  19. Anon - I went to the page you provided a link for, found 5 fairly short articles, and read them all. I did not see a serious piece of global macroeconomic analysis - so perhaps you can provide a more specific link?

    First of all, I would like to state that anyone who sticks their neck out, makes their case with sound arguments and is sincerely trying to be helpful to other people deserves respect. This is to say that I respect Mr. Armstrong's writing, though I most definitely disagree with his analysis.

    His initial short Q&A piece states "Keep in mind that the rally in the gold stocks during the late 1930s was caused by the DOLLAR DEVALUATION – making $20.67 worth of gold then $35".

    He and I would agree (I think) that what seems to be the primary driver for gold price is the devaluation of the US Dollar.

    If true, then the issue is less what is the future price direction of gold, but what is the future price direction of the US Dollar.

    Apparently Mr. Armstrong believes that the future price direction of the dollar is up. I disagree.

    If you enjoy his analysis and want to assess how credible his logic is, perhaps you would like to see how he responds to these questions:

    1. Why is the Fed printing $85B per month - for what purpose and for what expected outcome?

    2. Why is the ECB continuing to lower their interest rates and promise to print whatever amount is necessary?

    3. Why has Japan chosen to drastically devalue their currency recently?

    4. Why have powerful nations, mostly on the other side of the world, undertaken to trade directly between themselves with their own currencies and cut out the use of the world reserve currency, the US Dollar? Does this increase the demand for dollars?

    5. What has been the driver for gold's secular bull market since 2001, if not currency debasement? Has this driver change one iota recently, or accelerated?

    6. Was the recent haircut on gold natural - that is, a result of free market price discovery or at least accompanied by an explainable and shocking rise in the US Dollar?

    7. Does he have a global macroeconomic analysis that explains that the laws of supply and demand have somehow been aborted by the entire world? That is, if you print more pieces of paper it now makes them worth MORE?

    Anyway, enough of my questions. If he answers them I hope you will let me know, just for the heck of it, OK? write to: Thanks, John

    1. hi John,
      good article.
      i presume Anon refers to Armstrong's 'Reversal System' as the 'serious piece of global macroeconomic economic analysis'
      what's your take on this?

    2. Bwawwa - I loaded up the first link, read several paragraphs, skimmed a few more paragraphs, as my eyes began to glaze over I started flying down the page to see where and when it would end and decided I had seen plenty. My take on it, only because you asked and not because I wish to go out of the way to be critical of some one else's hard work, is that it is pure crap.

      Anytime I read about somebody's secret mysterious proprietary use of physics and their absolutely incredible call of this top or that bottom I say, who cares? I could make the same claims, even with a straight face, BUT THAT IN ITSELF DOES NOT TELL YOU HOW MANY TIMES I WAS DEAD WRONG.

      Second, this incredible system, developed over 40 years of mind numbing research, does not provide a track record and only the 2nd half of 2013.....will it offer a trading service, etc. for suckers to purchase.

      Look, if I was as smart as this racket pretends to be, I sure as hell would have a track record to prove it, I would have had a service to sell 20 years ago and by now I would be so rich that I would not waste my time even talking about what I do.

      Finally, call me cynical, but the web address reeks of deceit. There is no connection between these folks and Princeton Economics. It brings to mind the 'gold miner' Silver Falcon Mining (SFMI) that invented another off shore company to own it by the chosen name of Goldcorp. Silver Falcon is not owned by the real HUI index heavyweight Goldcorp (GG), but the play on words certainly fools a lot of people at first.

      Thanks for bringing this to my attention. It was quite enlightening.

    3. Hi John.
      Yes, interesting.
      Can't quite get my head around MA.
      Is he fraud, or genius?...(spent best part of 2000s in jail)
      Must say that Bob Moriarty at 321gold seems to rate his analysis, as he did yours, recently.
      Your article was classified as a must-read if i recall correctly.
      Seems Bob is something of a sentiment realist, and rejects all the manipulation/COMEX/conspiracy as pure BS.
      Adide from all the computer models, I feel MA is a sentiment man at heart.
      I just think he's wrong about where the sentiment is at the moment.
      Appears to be saying that just because permabulls such as JSinclair is predicting "gold to $50000!", that that somehow overides the extreme anti-gold sentiment everywhere else... and will result in price falling to circa $907.
      How does he arrive at that conclusion?

    4. Answering my own question!
      This posted yesterday by MA...
      "....So we see this more as a water-boarding torture event with the sensation of drowning only. There is so much bullishness out there concerning gold (bearishness on the dollar) that it is more likely to be a fight all the way down until the towel in thrown in at the low as was the case in 1999 and 1985."

      So he reckons dollar bearishness is interchangeable with current gold 'bullishness' (seemingly disregarding all the sentiment indicators you show, which paint a different picture), and his reason gold is heading all the way down down down, to bounce off the previous high of 1980, and rally to new heights from that base.

  20. Always nice to see some good stuff that just doesn't look at price action...too much is based upon pricing patterns.

  21. Thank you for the interesting charts and analysis. Like many others who have commented, I too have held on tight to my gold and gold shares...having stuck with this sector for the past 15 years. Your thoughts resonate strongly for me, but my confidence remains fragile. As I write this there's been yet another calculated hit on gold at precisely 9:00am EST (Tuesday morning). Agree that the manipulation can't last forever, but I can also say I underestimated the extent and extremes those with an interest in suppressing gold would go to to maintain the status quo and prop up the US dollar. I'm amazed they've been able to carry out this charade for as long as they have.

  22. Very good analysis. PLAT/Gold ratio turning up for the first time in 2 yrs. Silver testing long term support zone going back to 1980 at 20-22.50.

    Oil, Plat, Gold all tested their breakout points going back to approx. 1980 levels.

    Oil stocks beginning to break out from multi-yr base implying higher oil prices soon to come.

    Bob Upson CMT

  23. John,

    I believe I can try answering your questions:

    1) The FED is printing billions due to the deleverage created after the housing bubble burst and trillions of Junk mortgage backed derivatives are wiping out trillions in paper dollars wealth. Fed is NOT creating inflation yet (take a look at commodity prices –Are they going up? - The answer is: NO)
    2) Same reason: Trillions of dollars in junk derivatives (Banks have them still in their balance sheets sometimes at nominal values. Do you think those numbers are real? That’s deflationary not inflationary.
    3) Japan had been devaluing the YEN for more than 10 years now. Do they have inflation or deflation? Please think about it.
    4) Yes; you are right. Dollar might be losing its value as a global reserve currency but we are not there yet. The dollar is currently the ONLY place for big players to park their money in for the following reasons: Gold market is too small for corporate money, Euro is going down; therefore the dollar is still the only reasonably game in town; therefore going up (at least for the next 2 years)
    5) Gold is in a bull market but has been going up for 11 years. Take a look at the gold bull market from 1970 to 1980 (Gold had to correct almost 50% before resuming its uptrend. That would give us a target of $ 1,100– we are not there yet-
    6) Are you suggesting market manipulation? Markets always go up and down. Silver was manipulated during the 80s but even the manipulators lost money (because the natural market forces always overcome manipulation).
    7) Printing is the only way to try to restore balance after the global wealth was destructed by trillions of junk derivatives losing value. Printing is not necessarily inflationary. Again take a look at the current commodity prices.

    Marcelo Podesta (Pibe)

    Thank you

  24. Both points 1 and 2 are moot considering the suspension of market to market accounting in 2009. Those assets are carried at model value, not market value. Thus no losses from the trillions in assets have been REALIZED. The Fed buying those assets is a transfer of assets to the banking system that can be used to bolster capital ratios and support lending/trading into the general economy. This is not deflationary.

    Japan will get what they ask for. National insolvecny is on the horizon.

    History doesn't repeat, it rhymes. Gold didn't "have" to correct 50% in the 1970's in it's run into the mania phase, it did. Just because that happened then, doesn't mean that it has to happen this go around.

    Selling 400 tons at the market qualifies as what exactly? Rational selling?

    The world hasn't been destroyed (yet) by the derivatives. The printing especially in the US, is designed to reliquify the banking system, and by time for the US economy to recover. If there is below trend growth coming out of this, its game over. No one can grow deficits at 8% per year while the economy only grows at 3% indefinitely. If printing was the answer to the problems then why does anyone have to work at all?

  25. So many reasons offered for the price of gold, silver, dollar, etc., to go up or down. All are very rational reasons. One. problem. The market is not rational.

  26. Although the sentiment is extremely bearish, the sentiment isn't bearish at all in the physical market. Public is buying gold and silver there are reports of shortages. There is a dichotomy here between the paper and the actual physical markets.

  27. Thanks for collecting all the unique materials and we really appreciate your work.
    The title of your article is "Gold and Silver: Sentiment Reversal is Inevitable" and your thesis well-verifies your point of view: Reversal is inevitable. And the progress of gold price will prove the correctness of your point of view. Of course, when the reversal will be, this will depend on the market development, but sooner and later the reversal will arrive.
    Thanks again.

  28. Forget about all these elaborate charts, graphs and reports and just keep your eyes on the Daily, Weekly and Monthly RSI(14) and Bollinger Bands of $GOLD.

    Right now the Weekly RSI is about 12 points below the Monthly indicating a strong underlying long-term bullishness. However the Daily RSI is still about 10 points above the Weekly indicating a short-term overbought condition. As long as the Daily RSI will remain above Weekly, price decline will continue. However when it drops by more than 10 points below Weekly which, in turn will remain more than 10 points below Monthly, a long-term bottom will occur.

  29. Ulysses - your strategy sounds simple and if it works that would be quite exciting. I cannot tell you how many times I have eye balled a particular strategy and thought it to be, well, since I am a very modest person....absolutely BRILLIANT! So 500 times (at least) I thought my idea not only brilliant, but also ingenious, incredible and the very definition of the get quick scheme.

    Then I convert my idea to computer code (yours would be totally easy to write), and let the computer fly - simulating all the buy and sell trades just as you have described. All I can say is ..... S**T! Like nearly all 500 times. So heck, I respect your enthusiasm and certainty that your idea is off the chart, but I know 500 times better.

    If you have access to ThinkorSwim and don't know how to write the code, send me an email and I will write the strategy for you and email it back to you so you can run it on your machine whenever you want, OK?

  30. Gold could rally back up to its downward-sloping trend line and then collapse again or it could break thru and start a new leg in the the bull market. Time will tell...

  31. What amazes me you can go out and buy a new car and loose 7to8 thousand dollars in the first year of owning the car, but your afraid to buy precious metals something wrong with your thinking and I'am talking about the people who are running from a very good investment gold and silver, the American dollar is going to crash and burn thanks to both political party's.Ever time you go to the store see how much your paying for something and the size of the package, so we are doing so good according to the NEWS;; BS

  32. John,

    I will go back in when indicators turn up. Trying to catch a falling knife is suckers game.

    If gold has still another leg to go to 2K+/Oz. I could care less if i bought the exact bottom or 200-300$ higher. There would be still 500-600-700+ dollars upside.

    Getting into the trade because you fear to miss the profits is a bad behavior for any trader.

    Wait for the market to strengthen and show its bullish hand!

    1. Gold and silver are useless today in a way that they never have been in history. Research Graphene. If his has the capabilities that
      are currently being patented and developed no industrial need for silver or copper. They will probably find a chunk of gold the size
      of Mt. Everest somewhere and gold will be sold as a laxative at the local grocery store. By the way, I own GDX (unfortunately).

  33. This is simply brilliant! Thank you for taking your time to publish it.

  34. John
    Dollar doesnt seem to be breaking down but consolidating. If so it is forming the right shoulder to its inverse head and shoulders on the weekly. If it breaksout it will spell problems because of the major base it has formed on the montly. Do you see it? Its similar to the 1999 base that blasted it to 120.

  35. Anon - if I use my imagination I can come up with a screwy inverted head and shoulders pattern on the weekly dollar chart if I use the weeks of September 10, January 28 and presumably April 29. Maybe that is what you have in mind?

    It takes a little less of my imagination to come up with a fairly decent looking head and shoulders on the weekly dollar chart using the tops of weeks January 9, 2012, July 23, 2012 and April 1, 2013.

    I'm not sure I see how this compares to 1999, but I'll take your word for it. What I do see for comparison, using my handy dandy customized gee wiz Money Flow Index indicator is that Money Flow peaked two weeks ago at a totally nosebleed level = the weeks of June 7, 2010, and March 2, 2009, and July 4, 2005, and September 11, 2000, and May 31, 1999.

    In the same order, June 7 was the top, March 2 was 1 week before the top, July 4 was the top and followed by 8 weeks lower, then a final counter rally that admittedly did make a higher high than July 4, September 11 was early by 8-10 weeks before a significant correction, and May 31 was 6 weeks early, albeit price made little progress during that 6 weeks.

    Unfortunately, there is no one indicator or even combination of indicators that is 100% accurate. And with all the double and triple reversals we see in the currency markets routinely now, it is increasingly difficult to know when they will work and otherwise. I would just point out that this and the previous daily cycles of the dollar were failed cycles - that is, they made lower lows. That is not bullish at all.

    Ah, if only Ben would phone me more often so I could tell everyone what will happen next.

  36. Platinum continues to outperform Gold. Every Gold bull market is lead by MR. Platinum.

    Oil stock breakout on key etf XLE continues to suggest that savvy traders are picking up oil shares on the cheap and anticipating higher oil prices.

    leading to higher gold prices.


    Whatever is coming odds appear to favor an eventual price breakout for both Plat and Plat/Gold

    Bob Upson CMT

  38. The dollar is on a tear and looks to have invalidated your cycle count. Let's see what happens.

  39. Dear John,

    I just sold my last mining shares I was holding. Time and again, your analysis has proven false. Sentiment reversal is inevitable as you say. However, it could be another 2 years before that happens. $1500~$1520 gold is now a strong resistence and I don't see gold breaking above it anytime soon. I think gold is headed toward $1000. Nobody beleived when someone said it's heading $1300, but it happened. Reversal will inevitably come, but we might be dead by the time it happens. I'm saying final goodbye to gold/silver and mining shares once and for all (with a substantial loss, I might add). But late is better than never. Good luck to you all. I wish you the best.

  40. "I just sold my last mining shares I was holding. Time and again, your analysis has proven false."

    This is exactly the times to be buying when sentiment is at its worst. "Anonymous" above probably chased the top and is now selling the absolute bottom... it's a great signal to look for that a bottom is in.

    I bought today with both hands. The COT report for COMEX reports that Large Spec gross shorts rose 4% to a new record high of 99,920 contracts as of Tuesday’s close. Small Specs also increased their net short position to a net 1,704 contracts. In addition, the 1M and 3M GOFO rates are both continuing to fall, this morning to .08% and .10%, respectively. The physical market is quickly approaching backwardation. GDX, SLV, GDXJ, and GLDX all went green. Most perfect set up!

  41. This is a really good article. I wish I would have thought of it first!

  42. John, the tsi indicator for the silver/gold ratio has broken the downtrend line, turned above 0 and as well made a positive crossover. (The anomal brief spike in mid April made a false top and should be ignored). Is this significant? -Trond$SILVER:$GOLD&p=D&yr=1&mn=6&dy=0&id=p97271119092

  43. Trond - I looked at your link and though I would not think the current ZERO crossover of the TSI (7,4) is terribly significant, there were indeed quite a number of fascinating things happening on the chart.

    First off, I changed the TSI to TSI (25,13) because I was curious to see a little more information on the trending viewpoint than the trading viewpoint. The current price action eerily resembles that of last July/August. And, the TSI(25,13) and MACD on your chart perfectly nailed the silver launch last August. As both these indicators are now rising, albeit a ways below ZERO, this suggests we are not there yet, but potentially 'on our way'.

    Second, a long long time ago I cut my teeth on drawing trend line breaks on the RSI. That was before I knew about the TSI - like 8 years ago or so. Anyway, I discovered that drawing trend lines on the RSI(14) was uncanny in not only telling if price was lifting off (or breaking down) but just as interesting, it told me *when* it would likely do it *before it happened*.

    So back to your chart, I changed the chart period to 1 year to make things appear a little bigger and easier to draw upon, and to the right of that adjustment - there is a white box for 'Extra Days' - I put in the number 50. This gives space to the right of the price chart so that lines drawn into the future have somewhere to go. Then I drew my trend line on RSI(14) starting with the top in September and connecting subsequent tops in late November and January then let the line continue downwards until it reached the RSI(14) reading of 50. 50 for RSI is something like ZERO for the TSI. Anyway, this line gives us our answer. Assuming things generally continue as projected, silver should have a massive breakout in about 1-2 weeks.

    BTW, you can use this trend line break technique on all kinds of things. Trust me, I have tried them all a million times already. For example, get rid of MACD and try MFI(10) or Chaikin Oscillator to assess buying pressure, or CCI(20) or OBV, and so on. Most all of these indicators work on the same principal of comparing one moving average with another and are very similar.

    Trond, you happened to have asked a question for which I have a great deal of passion and I apologize if my reply rambled on beyond a simple answer. But there is probably someone out there , if not yourself, who will try all this stuff out and be pleasantly enlightened. Thank you for asking.

  44. John - First thank you for your work, though I'm not a charting guy I can read most with some understanding and I do pay attention to your analysis. I am one that believes there is at least some intervention in markets and not all is technical but how much who knows? Your questions to the description of the macro world are right on in my book but hardly get discussed, certainly not comprehensively by the MSM analysts so most investors go their merry way and so goes the market. I would like to see your thoughts about the following items that I think will string the market along and not be positive for precious metals for a period of time.

    1. Most of Wall Street guys are students of Keynesian economics so they don't really buy into Gold the way we do, and most are smart enough to know the gig is up for their game when gold really takes off, so they for the most part continue to trash it when they can.

    2. I am in the crowd that continues to proclaim my concerns the money printing will end up badly, but it continues at a massive pace and is much of the catalyst of the tremendous move in the market while gold and silver have reacted poorly for almost 2 years.

    3. The recent jobs numbers look very positive, even though much of the increase is part time jobs being expanded by companies getting their staffs under the hours and requirements of healthcare. Little has been reported on the real trend going on here. This along with ongoing tweaked numbers coming from the government to make things look more positive.

    4. Soon the GDP growth will be skewed with additional items like R & D expenditures that is expected to increase the GDP about 3% which will look very impressive. I think it's a timely move by an administration that has such failed fiscal/economic policy.

    5. The real estate market has been doing better and adds news to a more normal growth situation with the economy. I do understand there are more foreclosures to come that will affect that trend but are seldom discussed.

    So what I'm saying here is there is what I think is a lot of misinformation out there and a lot of news cycles we have to go through before the reality is understood. Europe is coming into some of the reality I'm talking about with the growth of unemployment while the socialist policy makers keep talking about growth but really have no clue how to do it. But they have learned how to print and they will print to continue kicking the can. Except for Europe which does have the potential to blow up though I've felt that way before too, the rest of the news will take time to work through so as much as I hope you are right I think we will see another significant downturn in Gold and Silver before the end of the year and a rebound will be unlikely till next year, but maybe I'm missing something.


  46. Hi Jerry - wow, you had a lot to say! And, thank you.

    I am quite sure you have a better handle on a lot of the discussion items you cited than I do. I have indeed heard/read these same thoughts elsewhere but not accepted the challenge to try to deeply understand or memorize the arguments, though I do find them relevant.

    I have a much simpler understanding of what is arguably a very complex and intertwined puzzle to explain and act on, investment wise. So, at the risk of putting you to sleep with my hard headed point of view, I will give it another try:

    Gold is in a secular bull market. It is driven by currency devaluation. Unless and until currency devaluation ceases, the bull market will continue its mission to completion. It's about that simple to me, for better or worse, and I am going the distance with the bull, even through the bad times as now, to accomplish my personal goals.

    Now along the way there are corrections in gold. After the 2006 parabolic high it was 15 months before gold returned to that high. After the 2008 parabolic it was 18 months before gold returned to that high. And now, after the most time consuming and massive parabolic high of the entire bull, 2011, the correction process is taking longer - at present we are on month 20.

    In the meantime, all kinds of things happen - accusations and arguments are thrown here, there and everywhere - while most investors who believe in the bull ultimately get thrown off, and often just before the bull resumes its destiny.

    So yes, there are all kinds of interesting things to get sidetracked by - what does Wall Street think, and what is happening in Europe, and how about Japan, and where is the bullion really, and on and on. It's all fun to think about and yes, I even write about it, but ultimately it is all noise.

    After so many many years of building prosperity, more recently due to undertaking debt with a promise to pay the lender back, the entire system is cracking as sovereign nations, including our own, are deciding to deal with the fundamental problem of debt and insolvency by creating astronomically more debt via currency devaluation.

    There is no end to the lies told. The desperate manipulation of public opinion is critical.

    But I promise you that the sentiment of today will not be the sentiment of tomorrow when people no longer believe in their currency. And the way things are going right now, the change may be much closer than you realize.

    Thanks again for sharing your thoughts.

  47. John
    I was surprised to see no comment following your assertion that there are 16 oz of gold per pound.
    Are we not dealing with Troy ounces at 12 Troy oz per pound?
    I would be delighted to buy Troy ounces (31.10 g) at market and sell Avoirdupois ounces (28.35 g) to anyone at the same price.
    That plus a standard premium would be sweet!
    This is one VERY good reason for going metric, folks.

  48. Thanks for the information, I've been researching buying and selling gold for a few days now. I've saw some snmp monitoring software that looks to be a great tool to track market prices. Do you have any experience in this type of software?

  49. I haven't sold an ounce but all I see is deflation and a bottom at $750 for gold sorry,just saying!