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Gold/Silver: Greed, Fear and the Human Ego...

Stewart Thomson
May 17, 2011

  1. When any market makes a big move, tremendous interest in that market appears. After greed and fear, the next most financially damaging emotion in the market is likely the human ego.

  2. A number of major markets have made big or threatened to make big moves recently. The winds of change appear to be in the air with interest rates. Often there is what appears to be an initial “sea change” event. Unfortunately, most of the market action that follows a sea change move is not very predictable.

  3. The most successful investors operate from a state of what I term, “mild confusion”. When you are not really sure of the next move, your ego, greed, and fear are controlled. When you feel very sure you have the next move figured out, you are open to making such major capital allocation errors.

  4. I want to see you handle the next moves in gold and silver professionally, whatever they may be. My long term target for silver is $100-200, but the ultimate price is going to be dictated by silver’s big brother, gold.

  5. The solution to this crisis is gold, not silver. Silver is along for the ride, and may even outperform gold, but silver is not even a bit player, in terms of solving the crisis.

  6. Click here now to view the monthly silver chart. There’s no question that the silver monthly chart looks almost frightening. From a liquidity flows standpoint, the banksters have frightened hedge funds and speculators with a series of margin hikes. Investors wonder if the same thing awaits them again, if there is a price rally.

  7. I’ll get to the shorter term charts in a minute, but I want you to understand that this monthly chart is overbought in many ways, flashing many sell signals, and has no big support before the $20-23 area.

  8. The bottom line is that while I’m a buyer into this weakness, I have no illusions that I’m buying for a bounce, or making a turn call. I’m buying an item that has declined by about 35% in price. Price could blast through $50 and take all the technicals back into the overbought zone, but price could also consolidate here, or even continue to fall hard against the dollar.

  9. You can’t know what the next directional move is; all you know is that the item is 35% on sale in a long term bull market, during the greatest crisis of the dollar in history. Is that reason enough to buy some silver? Obviously it is.

  10. As a professional, you don’t guess. You prepare and respond. For the bullish side of things, click here now to view one of the most bullish liquidity flows reports since the silver bull market began.

  11. Since that report, price has taken another turn lower, so it is very possible that the liquidity flows are even more bullish now! Notice that the bankster (commercials) holdings have grown to 49,000 long contracts. The funds are down to only 35,000 contracts.

  12. Do the short term charts back up this bullish liquidity flows action?  Click here now to view the daily silver chart. On the negative side of things, I want you to notice the green histograms (pipes) on the 12,26,9 series of MACD that I highlighted.

  13. While the technical oscillators have dropped down, those pipes are not in a rising mode, suggesting this rally could fail. Price could indeed drop sharply lower, which would severely damage those who placed too much capital trying to call the turn.

  14. The monthly chart rules the short term charts, and liquidity flows rule everything, so the bottom line for silver is you have to be a buyer, while understanding price could be sitting on a trap door rather than on a spring.

  15. Because most investors trade far too large when they act at any given price, they become obsessed with trying to call turns, and that is exactly what is happening with silver right now. While the banksters are buying silver aggressively, you need to understand that they can buy not just 49,000 contracts, but 490,000 contracts, or millions if somebody took the other side of their trade, and do it all the way to a price of one cent an ounce, if push comes to shove.

  16. The positioning of the banksters is unquestionably ultra-bullish for silver, but that doesn’t mean their positioning can’t become even more bullish. Just as price soared upside from $30 to $50 while the technicals stayed overbought, price could also continue down with no rally. Instead of a rally, there is just more silver transferred from the funds and speculators, horrifically, to the banksters.

  17. All you can do in this situation is buy, but understand that while a rally “should” happen, that doesn’t mean it will be big, or even happen at all. You are accumulating silver here, not because you think it will “pop upside for a rally”, but because you believe the crisis is accelerating and whenever price does move through $50, you will be greatly rewarded.

  18. Gold is much more stable than silver. If you are personally too afraid to buy any silver, then you really should leave it alone. If you can’t buy a 35% sale on silver with even one cent of risk capital, you really should not be in that market.

  19. Rather than staring at the silver quote all day long and trying to pick the ideal entry point, just start buying gold.

  20. Click here now to view the daily gold chart. Gold has only declined by about 7% from the $1577 high to the $1462 low, while silver declined by 35%! A 35% decline (with potentially more coming) can devastate many if not most investors, while a 7% decline is really child’s play. Silver has moved over 8% on just one day’s decline, while gold hasn’t even moved that much in the whole decline.

  21. Note the key support line at $1444. You can’t expect (or predict) price to move to that line and magically bounce off. You have to buy into these major support lines if you are aggressive, and buy below them if you are conservative.

  22. Now take a look at this gold monthly chart. Note the 2006 timeframe. Price crashed from $730 to $563, bottoming out in the night during one of the biggest panic washouts of this bull market.

  23. Despite that massive panic, the RSI indicator still remained in the overbought zone on the monthly chart! Price literally washed out with the indicators showing price was still massively overbought!

  24. I have warned you that in a major bull market the technical oscillators serve as guideposts, but they can malfunction greatly. Looking for answers as to what comes next will not save you from the hurricane of volatility that is here, and accelerating. QE has failed and gold revaluation via central bank buy programs is on the table, but so is the possibility of higher interest rates.

Thank you

May 17, 2011
Stewart Thomson
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

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