Gold and silver prices: Mapping short term volatility

After years of paying attention to the price action and not the mainstream market commentary — thanks in large part to Ted Butler and GATA — here are some of the dominate forces that currently seem to be determining price movements in the precious metals:

Downside Probability

Jobs data comes out every few weeks. This almost always puts downside pressure on the market, with about a 90% probability. Also, presidential press conferences tend to have a 70% downside probability.  The powers that suppress the precious metals prices cannot have metals surging while the president speaks.

The Fed’s FOMC meetings and the following minutes have greater than a 90% downside probability, unless a surprise QE announcement is made. The surprise has been effectively quelled by taper signaling and the Summers vs. Yellen issue.

The beat of war drums is another factor. Interestingly, the closer that the country gets toward war or crisis, the more likely precious metals are to head counter-intuitively lower.

Options expiration dates are also notable, as well as the times immediately before or after they occur. Rarely do precious metals options expire for the benefit of the buyers.

Whenever the price of gold is strong, but the price of silver is weak the day before, this is another pending downside signal.

The performance of the NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index or HUI Index (an index of the stocks of companies engaged in gold mining) also seems to be influential. Gold shares may lead the way up or down. If PM shares are weak on an up day for the precious metals, the next day’s follow through is rare, and the subsequent price action is often downward.

Daily Gold Price Movements

The downside for assets like silver and gold may be unlimited, but true upside potential of these assets is rarely demonstrated. The upside is rarely more than 2%, and often reverses lower on the nose or just below that percentage gain. (The gain and intraday moves on Wednesday, September 18th, 2013  were of the largest ever).

In sideways rather than trending markets, the upside it typically limited to only 1%. Also, intraday upside reversals seem extremely rare.

Furthermore, the phenomenon of “overnight dumping” is almost always synonymous with New York selling pressure. This can occur in a bull market unless recent support levels were already cleared out in a technically oversold period.

The Technicals are Secondary

Resistance levels seem to be the most reliable technical factors, and everything else seems not to matter so much.

The most closely watched medium term moving averages include the 20-day, 50-day, 100-day and 200-day. Also technical traders watch the RSI indicator for overbought versus oversold indicators and divergence in extreme territory. This is not necessarily a strong signal for the precious metals due to the underlying price manipulation.

With respect to how chart formations impact the precious metals market, the longer term price patterns seem to be the most useful in terms of their predictive value.

Market Sentiment

The worse the media controlled current sentiment seems to be in the precious metals market, the better the medium term outcome for prices tends to become.

The COT is the main sentiment indicator and seems to help determine market direction, although it does not seem to be a predictor in and of itself.

When all swaps are removed, if the big bullion banks still control at least 5%-10% of the short side, then the PM market is always about to have an economically significant sell off.

Furthermore, when hedge funds start to enter the PM market on the long side as they begin following an upwards trend, the fruit is ripe for the picking and a sharp sell off soon commences.

The Bottom Line

The bottom line about all this is that by definition these are not actual markets where prices are fairly discovered by supply and demand factors. Instead, they are profit centers which the bullion banks regularly milk for their own benefit and profit.

The futures markets also act as displays or window dressing for a much larger underlying fiat currency crisis that remains hidden just beneath the surface.

How long this manipulative charade can go on is up to the thinnest sentiment in existence — confidence underpinned by human emotion.

About the Author

Jeffrey Lewis has been an advocate for silver purchasing for the past six years. He writes regularly about it at silver-coin-investor.com

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