On Friday, the conspiracy pieces were flying (some to my inbox) as indignation surged while gold tanked. One was forwarded by fund manager, NFTRH subscriber and all around sharp guy LL, to which I responded (pardon the crude descriptor for ‘momo’s’):
“L, let me ask you this. Why then did my charts tell me low to mid 1600's weeks ago? I am not trying to toot any horns, but I dismiss the conspiracy rationalizations. Too many a-holes bought gold IMO. Now it is being fixed.”
We know (or should know) that gold is gamed and worked over in myriad ways by powerful people seeking to shape perceptions (we are in the midst of the ‘misperceptions game’) out of desperation. But the correction in gold was necessary because these are the markets and in the markets, dumb and emotional money never wins out.
Thus, the folks that outright panicked in the face of the Euro crisis and the US debt debate folly were always slated to be washed away because they are what should be considered unhealthy holders; weak hands that bought in knee jerk fashion rather than in service to a sensible, ongoing plan (the ‘knee jerk’ into gold was part of the reason I wrote To The Newly Minted Gold Bugs [http://is.gd/VoXBmj] in August). Also, a severely over bought chart did not hurt the correction case one bit. Anyone could see this coming. Spare me the rationalizations; it is time to think like a winner, not a loser.
Precious Metals – Gold
Was that a capitulation I saw on Friday as all the blinking red lights on my screen seemed to light up like a Christmas tree gone berserk on Friday afternoon? I am not sure; nor do I really care. What I care about is that this chart is no longer over bought by greedy and fearful momentum players. No matter what conspiracies the vast, internet-based gold bug ‘community’ burps up, this chart had to be fixed.
Gold declined on heavy volume on Friday, filled the gap and satisfied the 62% Fib. Technically, there could be additional downside to the EMA 200, former channel bottom and lateral support at around 1550. But the chart is getting fixed. You get bullish on gold when it is hated, not when it is loved. RSI is coming to a support zone, MACD has been totally corrected, and we have patience.
‘Public Opinion’ sentiment was (finally) beginning to come off the highs as of September 20th. Want to bet that it is much healthier now? The public’s dogged fixation with gold, however brief, was a troubling indicator. It is notable that the sentiment in silver was already significantly compromised as of the 20th and commodity sentiment was in the dumps.
I make many moves during the week out of instinct, but the work I do on Saturdays often confirms why I should have (or should not have) made those moves. Today’s work tells me exactly why I covered all short positions against commodity related items. Public opinion is now supportive of rebounds in the precious metals and especially commodities. ‘Supportive’ is not a mandate for an immediate relief rally, however.
Here I will note that targets remain lower on things like base metals, and silver’s chart looks awful. So we should be aware of the possibility of a snap back rally perhaps to test, and potentially fail at, broken supports.
Back on gold, also as of the 20th, gold’s CoT structure looked good as large speculators got less long and commercials less short. Take a guess how it may look as of the end of last week. Hedge funds are getting their grubby hands off of the play. It is not a play; it is a hunk of insurance and monetary value.
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