The Cartel Is In A Box With Gold & Silver Prices But Don’t Start Celebrating Yet

Both gold and silver ended last week with bad omens. Let’s look at those omens as it pertains to the problem the cartel has had for months: Open Interest In silver, open interest needs to come down:

If it comes down this week, the cartel will have painted the chart rather bearishly in the short-term.  If we drop below $16.59, then we will have put in another lower-low on the charts, and if open interest is going to come down, it looks like silver very well might get below that price level.

Gold looks relatively smoother on the chart, but the open interest is still too high:

The key level to hold on to is $1263. A drop below that price will again have painted the chart very bearishly. One has to wonder, how much lower either gold or silver could drop before the dip is bought, however? If the dip is bought after the spec flush-out, open interest will literally shoot back up again as the cartel will attempt to issue as much paper as possible to contain the rally.

This really highlights the fact that the cartel is stuck in a box. They are having the darnedest time flushing out the longs, but at the same time, once they do, the longs will come right back in. It goes to show that it really is impossible to contain laws of economics, and while they have been able to for some years, it is now nearly at the breaking point.

Anybody who read the India Cash Ban Anniversary post would have seen this, but this seems appropriate right about now.

Here’s the trouble the cartel is having in keeping the prices of gold and silver held back:

How demonetisation stopped the black money market. pic.twitter.com/X46GnV7UF6

— Bollywood Gandu (@BollywoodGandu) September 11, 2017

 

In fact, this difficulty is showing in the GSR:

There appears to be an uptrend forming on the gold-to-silver ratio. if they are able to flush out the spec longs, that number will likely shoot up even higher in the short-term. Just more evidence of the box in which the cartel finds itself. If the ratio starts getting closer to the 80 side once again, there will be a flood into silver to take advantage of the imbalance.

Here’s a thought: Is it possible that platinum is being pushed lower this year in an attempt to further crush precious metal sentiment?

Platinum does look to have bottomed in the short-term, and it looks like it has room to run before open interest becomes a problem, so the outlook is otherwise good, but wouldn’t it just crush sentiment if platinum got a taste of the price smashing this week?

Palladium, the shining star of 2017, is still doing its thing:

Something interesting about palladium is just how the open interest has dropped this year. First off, palladium is a way smaller and less traded market than gold or silver, so the open interest builds and drops in a steeper, quicker fashion. Also interesting to note is that on the chart, open interest in palladium has dropped on both dips and price rallies. These are the signs of a less manipulated market, unlike gold and silver whose open interest 9 times out of 10 falls on price smashes.

However, if the cartel is going to flush out the longs in gold and silver, this is going to be a problem:

Although still low, market fear is beginning to spike. Of course, if domestic and geo-political fundamentals are part of it, and if the ESF and Fed were not, the VIX would be spiking even more.

A VIX moving higher is bullish for gold and silver because the precious metals are “safe haven assets”. They feed off of, in part, uncertainty.

The dollar is also going to be a problem if the cartel is smash price to cover their shorts:

The Japanese yen looks to have turned and looks that is is beginning to strengthen against the dollar. A strengthening yen (which is shown by the action moving down on the above chart) is good for gold, just the same as a weakening dollar is good for gold.

We highlight the yen because it is one if not the preferred carry trade to move the metals market.

For the yield on the 10-year, we’ll just have to wait and see:

Over the last 52-weeks, the yield on the ten year has been between 2% and 2.6%. With all of the fundamental news picking up steam, we’ll see how that factors in to the Fed’s supposed “balance sheet unwind”. Recall however, that if Powell is confirmed, just as in Yellen, Powell is set to slash interest rates during the next financial crisis.

So the question: Does the Fed even have one rate hike left, or will the next financial crisis come first?

Looking at commodities, crude is about to facing some resistance now that spanned two months in 2015:

If the war drums beat louder, however, or if the petro-yuan really picks up steam, the price of crude oil could get moving in a hurry. In the immediate short term, however, it would seem that the shorts and the longs would be working out their positions, especially after crude has risen 9 of the last 10 weeks.

But any middle east pop-offs, or shock global currency events, and all bets are off.

Copper is facing some minor but also major support:

Since it is not the prettiest support, we’ll call it $2.93. However, a drop below $3 would bring out all the bears with their “see, I told you so it was a fake rally” memes. However, if the price of oil is rising, which it is, then it will cost more to get copper out of the ground, so that fundamental reason in addition to the technical support levels translates into a price that will have difficulties breaking though to the downside.

Finally, looking at the stock market, this sees appropriate:

That’s the sole remaining original Dow component business. Gold is beating GE this year, and to understand the significance of this, see yesterday’s post about why gold beats the stock market, hands down.

On the calendar this week, there is a busy week with data points and a slew of Fed Head speeches.

It is a little light early on:

But come Wednesday and especially on Thursday, the data releases and events really start picking up:

Over the course of the week, several key inputs the “data dependent” Fed uses to determine interest rate policy will be on Tuesday, Wednesday, and Thursday. But it stands to reason they will pump out whatever number that supports their narrative.

And then there’s the real economy.

Stack accordingly…

– Half Dollar

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