"YOU (Still) AIN'T SEEN NOTHING, YET"
"GOLD SHORTS GONE WILD ~ LONG?"
I have received questions asking why strongly suggested in the August 8 and August 15 editorials that the "HUI Fractal" work that I do suggested that we would see a new low for this corrective phase, yet I decided to focus on the upside. I will explain the reason and show charts of the two fractals, but first I'd like to discuss what I believe is currently going on with this ramp down in the Gold sector. The two ideas are basically intertwined.
I have read a lot about funny things going on in the Gold sector. Much of the information comes from a very well-spoken group, called GATA. In my opinion, GATA has earned a very lot of respect. Still, it is difficult at times to rationalize ideas which might be described under the heading of "manipulation or conspiracy." Yet, so many types of manipulations go on around us all of the time. I suspect that many cases that might be called "manipulation" are simply seen as "moves for the greater good" by the manipulators. Could that be the case in the Gold sector, today? Well, I have read a lot about a Gold company trying to buy Novagold in an attempt to cover their short position in Gold. Still, I think that NG is a real jewel in the Gold Mining Sector. I think Novagold's value should be multiples of what the other Gold Mining Company has offered for it. Why wouldn't this company want to buy NG for the price they have offered under any conditions? Maybe we should put on our "manipulation hats" for awhile and see how life in the Gold fast lane these days might be playing out. Dumpster hats on, fellas………….
I think this recent weakness in the PM sector goes much deeper than NG versus ABX. ABX made their move at this time do to the convenience, it might even be related to the big banks, but I think the real significance of this short-term depressive event in the Precious Metals has much deeper significance in this Historical Bull Precious Metals Market.
I believe that the Gold shorts simply MUST manufacture a way to cover their Gold shorts at this time because they know that Gold and Silver will be going much higher over the next couple of years. So, Paulson goes to Washington- not a story for the faint of heart. So, did Paulson take over the Treasury (A corporate takeover?) with a story for the Administration outlining how he could make winning the November elections possible- a plan that would ultimately benefit the Gold-short crowd as well?
Let's take a look at what such a plan might entail. With the poll numbers for Mr. Cheney possibly sinking into the single digits- a feat never before performed by an Administration in history, I have read, along with the President's poll numbers being extremely low; it seems that virtually every single aspect of reality needed to be revised if the current Administration wants to see status quo in Congress continue. So, all of a sudden- up must be down, and down must be up. The idea that inflation is rampant needed to be reversed in the minds of voters- no matter what reality is- it needed to be reversed in the future hopes of the voters at least until November. With the housing market imploding, rates needed an (mental) overhaul at least to the point of changing expectations to no further raises in rates to support the Bond markets, the real deciders of rates.
In order to achieve the above, the necessary course seems simple. With the massive drubbing the economy is taking, you start off by suddenly withdrawing liquidity, an event we saw over the last couple of weeks. Since most liquidity has been finding its way over to the Precious Metals and commodities, ultimately, the withdrawal of liquidity is the initial smack to Gold and Silver. With a set plan in place and if "Another" can be believed, it is not a far reach to think that a well-organized plan would find the ME oil producers willing to go along for the short-term ride. As Another stated, "the oil producers have no problem with lower oil as long as the price of Gold is down since they only hold long-term value in Gold", ie., they value Oil in Gold. So, now we have the beginning moves of Treasury sponsored drops in Oil and in Gold/ Silver. This is followed by a "paper attack" on Gold and Silver and Oil. Another also said that the "paper Gold" markets contain multiples of all of the Gold in existence.....so what stops the "crew" from simply adding a bit more to the illicit paper Gold pile? About the same time, the usual rumors of Central Bank selling surfaces. I have some questions, here. Has anyone ever seen real life evidence of such selling? In my opinion, this Central Bank Gold does not cross on the paper exchanges where paper Gold is traded- small PM investors are not taking deliver of it. So, in reality this Central Bank Gold, IMO, is just traded around by entities that do not routinely take deliver of "paper Gold", anyhow. It is all just an illusion, IMO, that Central Bank Gold has any real effect on the physical Gold markets - Is this just another illusion to separate you from your Gold and Silver at the worst possible time?
So, maybe the bottom line is that we have an Administration that wants to see a friendly Congress elected, coupled with corporate interests that have a real bad need to cover their short positions in everything Gold 'n Silver. Could they be trying to cover all of their collective P's and Q's in one fell swoop?
JS has always said that the day would come when the same group that is shorting Gold would be the same group to cover their Gold-shorts and to take Gold, higher. I think that day has come. If you look at charts of the fall in the PM sector you see a complete rout in price. It had to be that way to break the psyche of Gold investors and to make a dramatic change in the psychology of voters, IMO. It had to be that way to force enough selling for the Gold shorts to cover, AND to go long. The process is not yet complete, but I don't expect it to take much longer than a week or two. The rest of the cover for the Gold shorts could be completed on the first wave 1, up, and wave 2, down. The "break" in the price of Gold and Oil could be sold by the Administration as the "future of inflation falling", just not seen in current inflation numbers. Who gives a rats ace once November is out of the way, right?
This is part of the reason I stated in my editorials that "if the fractal completes, exactly, we will see lower HUI lows." Yet, I also said, "If it does, I will be holding my PM positions since I do not want to miss the next run in the PM sector." IMO, it would have been very risky to do much selling based on a past fractal if the break-out in the ascending triangle would not have failed. I also never try to trade downside spikes if I expect them to be very short-lived. As "jlodots" said, trading the PM sector can be very difficult. Instead, I treat the current environment in what I call a "position trade." It means that I expect the HUI to be much higher over a year due to the HUI fractal so I use the drop (since it has occurred) to set-up positions that will take advantage of the combined leverage of explorers, junior producers that will have increased production in the face of rising PM prices, and call options mostly placed out in future months/ years (yet steeply reduced in price on this PM plunge)......all set as positions to create a dramatic rise in the portfolio, all in deference to short-term valuations. There are lots of ways to skin a cat, but to skin a cat one must not be left behind standing at the station.
So, let me introduce to you the "Real Question" as I see it. What will it mean to PM sector pricing over the next few years if the Gold shorts have covered and gone long? Who will hold the PM sector back after the fact, other than PM investors getting nervous (and selling) afraid that the current charade sell-off might happen, again? Don't forget that JS has often said that when this PM market takes off to the moon, the bulk of the PM investors will be left behind. JS has constantly told us over the last couple of weeks that this smack was coming. He suggested that it will not last into October. At this time, an exact HUI fractal would see this current drop in the HUI index completed by the end of the coming week so I will hedge and say in the next two weeks. After this low is in, the HUI fractal suggests we might have a move up to the middle Bollinger Band at around HUI 320 to 330 in what will likely be the equivalent of mid-October. After that, we would see a re-test of the bottom if the HUI fractal plays out, exactly. Then.....well, then the HUI would look like a real rocket-shot for the subsequent approximately 4-5 months all the way to around 470, with the possibility of a spike to 500 in that setting- a virtual 4 to 5 month doubling of the HUI index........IF....and I repeat "IF" the HUI fractal plays out "exactly."
"That" is what I think the future looks like with the "Gold shorts gone wild-long." BTW, at HUI 470, the GSGW, Gold Shorts Gone Wild, will not be done if they have gone long Gold, IMO. The rest of the next year, IF the HUI fractal repeats exactly, would likely see the HUI index run up to around 740 to 780. Now, let's think about this for a moment. If the HUI index bottoms around 262 in about a week, then runs to 780 over the next year- that would be a 197.71% increase in 12 or so months……for an index. Yet, many PM stocks would likely grossly outperform the performance of the HUI Index since it is composed of some larger stocks that will not show as much "upside volatility." I would not be surprised to see ECU trade up to $20 to $24 Canadian during that run, though that is not based on charts, only my gut feeling for how stocks trade. SSRI might trade to as high as $80, IMO......that is based on my dubious knowledge of charts. Under those precise conditions, all supported by an HUI fractal that has not missed a single beat since I proposed it publicly around HUI 165, almost every single PM position should make the associated investor very happy, IMO. Yet, it is nothing new. Most of these moves in the HUI since the bottom have seen the next "move up" increase by about 2x the prior intermediate high. THIS ONE WILL BE A BIT DIFFERENT, THOUGH. What will be different? Well, this final move down might have been orchestrated to separate you from your PM shares, from your Precious Metals, and from your contracts. A coming rocket move upward in the PM sector might be different because it might be missing "YOU." I would take this very personally if I were you. Somebody might be wanting your PM possessions, right about now- precisely at the time when you need them the most, IMO.
One more idea might also come to pass. If "we" are right about this dive in the PM sector being potentially one of the biggest coups in market history by the Gold shorts, there are other implications, me thinks, as well. "Another" introduced to the world the idea that the ME oil producers looked at oil pricing in terms of Gold pricing. If the above is soon to play out, as the price of Gold rockets off to the old highs, then through to higher levels, do you really thing the ME is going to allow oil to be sold at these current low levels? NO WAY, JOSE'!!!! I think we might be at an inflection point in history where inflation is being sold as low and going lower, yet the next year will see one of the most dramatic rises in inflation in history. Even if you only consider inflation in monetary terms, that is still so. In fact, I have another question. We know that the Fed has been between a rock and a hard spot that has constantly increased to being between a rock and a harder spot as more liquidity keeps moving to Gold, Silver, and Commodities. So, if the Gold shorts, which might be spelled- the big US banks- are now going from "Gold short" to "Gold Short Gone Wild Gold- Long", will they even care anymore about liquidity moving over to the Gold, Silver, and commodities after the elections are over? If not, this fact could eventually hit the general stock markets hard, but I would argue "that might come in 2007."
"THE HUI FRACTALS"
The current correction in the HUI index, even with this latest drop, is still very much mirroring the earlier HUI Fractal, IMO. Yet, there have been enough differences to warrant my holding many PM positions looking for much higher HUI levels into next year. In the 2002 fractal, the HUI corrected back to the middle Bollinger Band line on the daily chart, rallied toward the upper Bollinger Band, then had the equivalent fall as today down slightly through the bottom Bollinger Band.
I have circled in Blue the correction that I believe might correspond to today's correction from HUI 401. A "UR HERE" label points to the equivalent spot we might be in today's HUI fractal. We can see that in the earlier fractal that the HUI continued to correct for a bit, spiking down through the lower Bollinger Band. After that, the HUI rallied up to the middle Bollinger Band line before retracing most of the up-move. Then, the HUI index started a run for the roses to much higher levels, marked by a green arrow.
In today's current HUI fractal, the HUI corrected in an "A, B, C" format down to the bottom Bollinger Band on the first, or "A" wave drop. It , now, appears to be dropping in a "C" wave toward the bottom Bollinger Band. We can see in the first fractal that the HUI spiked a bit through the bottom Bollinger Band in a "C" wave. Will this pattern repeat, again? If it does, will the next move be a rocket-shot upward like in the first fractal? IMO, the TA indicators are very similar in both fractals. Look at the triple hump in the RSI around the 50 line before one final drop lower as the HUI bottomed down at the lower Bollinger Band. Since the lower Bollinger Band is "higher" than the first low in this second fractal, the final low may not come in till a "lower low", or it might come in higher this time in the 280 area……….or, it could even come in as we speak…………..IMO. I am focusing on the 262 to 280 area over the next week, or so. Personally, I do not want to miss the next HUI moves to come after this bottom.
The link to the Gold-Eagle Forum is………….
I'd like to thank all of the posters at the Gold-Eagle Forum for their daily input. This thank you is especially extended to TQ and to Grininbarrett. Special thanks go to Dr. Vronsky and Westerman for creating the Gold-Eagle site and for editing my work. A very special "Congratulations" go out to Dr. Vronsky and Westerman after Gold-Eagle saw its hit counter ring up 241 million this last week.
Thanks also go out to CaptainHook and David Petch of TreasureChests since I have learned so much from them. You might say that Master Petch has become the leading residential expert in the charts of CWCP, along with many other sectors. They can be found at www.treasurechests.info/index.php
There are many great editorials that can be found on the Gold-Eagle.COM site at the following link. www.gold-eagle.com/research/petchndx.html
September 18, 2006
Please understand that the above is just the opinion of a small fish in a large sea. None of the above is intended as investment advice, but merely an opinion of the potential of what might be. Simply put:
The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions.
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