Could we see $3000-$3500 gold in the next run up? Perhaps. Or maybe not. Who knows. We’ll look into it below.
In part 1, I dug into TA, told you the guys I like the best, but I got some new stuff here for you non-industry folks that I learned this past week that might help support my thesis more.
Essentially, my thesis was, “in the absence of macro events, TA can be useful to exploit the psychological phenomena of buyers and sellers. The more macro events involved in something, the less importance TA has”. I would also like to amend to that – “while a macro event is taking place and DRIVING the DIRECTION of the move, TA can be useful in estimating how far a price move can go, when it might go, and if it went too far – while helping investors and traders reduce risk”.
This is not to shit on the entire industry of TA. But someone wrote a comment that has to be taken seriously – it went, something like, “in 2021, did anyone who does TA on gold and silver call anything in 2022 even remotely accurately”. The true answer to this, is “no”. Why? Because gold and silver have a LOT of macro events that drive price. In 2021 and 2022 – macro events are what pushed prices where they went – think about how Ukraine pushed gold up.
This came about because I was eyeing $21.50 as a possible place silver could land for 12/27. It’s not out of the possibility, but looking very unlikely. I provided some charts as supporting evidence with the 200dma, the fib levels, the possible downturn in the markets coming, and the options expirations on 12/27 which showed the “max pain” for investors was around $21.50. That is, how can you rinse out the most amount of dollars from longs and shorts of the silver call options so the banks don’t have to pay out?
In my Tweet on 12/20, I laid out some of this.
I then did a follow up on 12/21 that then caught a few eyes.
(Note, as of 12/23, we still have 2.5m oz that need to be delivered)
I got some people asking me about supporting evidence, and I mentioned how I played this trade all last year.
Here, I provided a 7 minute talk about what I did.
What I was essentially noticing was that from the top in 2020 – we were seeing significant smash downs every month around the time of silver options, followed by recovery of such. This is what it looked like with the smash downs in 2020-21ish. I stopped tracking this around Nov 2021 when the beatings continued, and no recovery came.
I called this the “beat downs”.
In the video, I felt we may have been near “end of trend” Oct 26th 2021 I then noticed the recoveries.
You could then see the BIG miss as the gold/silver markets tanked around April/May. No recovery. Just beatings on beatings.
What lessons can you glean from this?
- When there was a sustained sideways chop, traders appeared to play the volatility around options periods. While the price was locked in that channel, the getting was good. You can see how the price broke down eventually below the channel, and that was the time to get out of that trade.
- For 16 months, you could track approximate times when beatings and recoveries would happen. Silver is a relatively small market, so “market makers” can (and have) pushed price around.
- There was a magnetism of sorts to particular prices – I was able to see these on the CME group pages for silver options. You could look to where higher levels of calls met the high levels puts, and throw a dart somewhere near that price. I played that pattern for most of 2021 and made a killing on it.
I had chatted a bit with Chris Marcus from Arcadia about this, and did a show with him earlier in the year (Jan 2022) where I believe I called the options price pretty close a few days before options. I’m not the amazing Creskin, nor am I a god of the TAs. We could have done that video in 10 mins, but I think we just had a good time nerding out on silver and bullshitting about where things are going.
What I was sort of looking at was a probability of how low they could push it. The darker the gray, the more likely. The lighter gray, the more “short fuel” they needed to push it down. When you had looked at the puts, the reverse was true. So you could sort of find a middle ground to make both shorts and longs expire worthless.
Chris then tagged Vince Lanci on my recent post and he swooped in and made some comments. This dude is one of my favorite guys to listen to, and he’s commenting on MY post? Holy shit! I do NOT work in the industry, so any time these guys say things, I want to be a sponge and absorb all I can.
For those of you IN the industry, this might be pretty rudimentary, but Vince called it “strike pinning”. Meaning, they (whoever “they are”) can potentially direct a price to get options to expire worthless.
He felt $21.50 is not likely, as it is way too far away. I agree. Just going back to my historical charts – WHEN we were in sideways chop, it would DEFINITELY have been managed down to $21.50. The evidence above shows an AVERAGE of $2 down move each month. However, in the video I did with Palisades, it FELT like end of trend Oct 2021, and the next month, the beating hit us with no recovery.
The last few months, let’s look at where we are…
You can see the cup here, which to me is more or less a reversal pattern I mentioned in part 1. It’s sentiment changing and the cruise liner changing course. My $21.50 or so call was based on last year’s “sideways chop” which lasted for about 18 months. What we APPEAR to be seeing the last 3 months is a minor pullback going into options. In this event, Chris/Vince appear to be on the money with banks probably trying to prevent $24, but it might take too much risk and “fuel” to push the price down into what may might think is the start to a long uptrend.
I made a comment on the chart as I added the arc and cycles. To me, the arc is the change of sentiment, and you can see this with the double and triple bottoms. We see these cups all over the place. However, MACRO EVENTS can distort these cups. More on that below. I know there are cycle guys out there who only look at the charts and call “daily cycle lows”. They insist it’s the chart dictating price, but I overlapped a monthly cycle line to correlate with the options expirations days in red. IF you understand the underlying macro here, then ok – call your daily cycle low, BECAUSE on the other side of the options you usually have the recoveries.
Meaning, this is not the tail wagging the dog. The chart is NOT directing price. The price is a reflection of the macro event of the options expirations, and perhaps contract rollovers happening.
With the cup, let’s look at my bungled DXY chart. Just focus on the BLUE dome in the top pane.
What you COULD see developing here was, in the absence of significant macro events, the dollar was hitting a high and rolling over. Guess where it broke up from there? A month after the Russian invasion. What then happened was Russia started talking about gold for oil, and EU countries as well as Japan started seeing the costs of their energy skyrocket – JUST as the US started tightening. One could then speculate, that if Russia never invaded Ukraine, energy costs would not have skyrocketed, and the DXY could have continued its down trajectory. Meaning, it’s possible that because that initial effect is wearing off, that the trend it was on, would resume.
You can see this with the gold chart too.
You could see how the war shot gold up in fear, but perhaps it really wasn’t quite ready to break out THAT far yet. With the damage the move up on the DXY caused, you can see how gold tried to then find that handle or flag, scooted beneath it, and then banged its head up against it. Pretty much right after the DXY seemed to top and come down, gold came out of the gutter and broke the DXY line.
These macro events explain what you are seeing on the charts. These rails/lines etc CAN be useful, in the ABSENCE of macro information.
We can now see where gold is, it’s above the 200 dma and handle. What I BELIEVE many are waiting for is more evidence of the macro. I am now seeing the $3000 and $4000 gold articles coming out. I can see the reluctance people have to jump back in.
The questions I think the macros are going to have to answer are…
- Will gold and the markets continue to diverge? If so, that would have some dollar strength AND gold strength at the same time.
- IF there’s a panic sell off and everything is sold, we get a SHARP move up in the dollar, and this could push gold back under the 200dma, which then could trap it below the LT trend line again.
- With the worst 60/40 in history, would gold then perhaps be the favored risk off asset? Considering China, Japan, and the fed are all sellers of bonds, with the gov’t just passing a $1.7T onmibus, you can potentially see high rates continuing with the bonds.
Now, another question here is, is gold still in the bull?
I know one guy out there uses a LT chart to show there’s a massive gap down to the LT line, which shows gold could hit $1450. I know I saw it too.
But Happy pointed me to log charts for longer term, and this might take out a lot of noise. This would more or less suggest we just hit the lows.
This article also suggests perhaps gold might outperform equities like it did from 2001-2011.
If the MACRO suggests that gold will outperform equities, how can we measure this outperformance? Personally, I love ratio charts more than anything. It seems to have relative value to other things, which provides a lot of information for me with how I value a move.
This chart would confirm that the Dow to gold ratio is near an all time low.
Now, IF we want to THINK gold is moving higher, you have a few ways to look at this…
- We wait for a few weeks to see if it breaks down below the line or continues up.
- If it goes up, we want to perhaps then use TA to see how far it MIGHT go.
You can see how from this drawing, they take the measurement from the top of the cup to the bottom, then add that to the top of the flag.
This gives us about $3,000 gold.
In another method, they measure from the top of the cup.
If we adjust the chart for this, we get $3500.
Is TA useless? NO – but to me, it needs to be used for….
- To supplement price action ONLY WHEN no macro events could shape price
- To measure moves to see IF price moves, where it COULD go. This is useful for when to buy/sell for trades
- Finding points where buyers and sellers MAY do an action in lieu of no macro events (moving averages and daily charts can see movements from the 20/50/200dma with accuracy)
- Finding when trends run a little hot/cold (RSI)
- Finding places to enter/exit to reduce risk (MACD). I did not say ELIMINATE risk.
- Finding cyclical patterns ONLY IF you understand the underlying macro underneath the pattern that could change
- Spotting areas of price compression (triangles) which may be indicating a macro event coming that could shape the future of the underlying item – for example, earnings coming and you see a triangle which may have shorts/longs fighting. If you have a REALLY good idea that earnings will suck, you will probably see a descending triangle, and vice versa. Breakouts are then a result usually of a MACRO event which has shorts that need to cover, or longs that need to sell due to margin calls. This “confirmation” is a washout of the opposing side.
I wanted to write this because of “pin risk”. This was a MACRO event that I never knew about that with “strike pinning”. To me, this was more evidence that if you have macro events, TA is more or less REACTING to the macro event and NOT THE CAUSE of it.
I believe this is why Kevin and others are so good with being VERY accurate with Bitcoin – because there are really not a lot of macros that move price. It’s also why a lot of these TA guys might be able to call for $2500-$3500 gold and be somewhat accurate. I don’t see $3500 in 2023, but could a result of this be a sustained 7 year PM run that does have it around $3500? That is a hell of a lot more likely than $3500 in 2023.
When you have complicated items like gold and silver, it is WILDLY connected to so many other things, that TA for short term prediction is somewhat a fool’s errand. But, if you manage risk correctly, it can be useful. Imagine you bet $50 time and time again on an event, and you are correct 40% of the time. You lose money, because you lost 60% of the time. But what people do NOT get with the TA part, is you do NOT HAVE to be correct 60% of the time. Even if you are correct 40% of the time, it’s not about the $50 bet, it’s about when you sell out of the $50 bet. If you are wrong and lose 10% of that money, you walk back with $45. However, if when you are right, it runs quite a bit and you can use Fib or RSI or MACD to sell, you might get a 20% profit, or $10.
Out of 100 events, you are correct 40% of the time. This means 40 times you lost $5 ($200) and 60 times you made $10 ($600). Out of those 100 trades, you were wrong 60% of the time and made $400 profit.
TA is not about fortune telling. It complements macro analysis to help people manage risk when trading/investing.
Let me also tell you something. If a TA guy on charts is adamant of something and tells you he is right all the time, run away. Many of these guys are weather forecasting, and it helps to know where stops are, where Fib levels are, and understand indicators as part of your toolbox. Remember, your chart can look awesome, you could have written 50 books on TA – and a CEO dies in a helicopter crash and your stock could shit the bed, an hour after you called it to go to the moon.
Now – to me, there’s also a lot of interest with the momentum analysis and Elliot Wave as more of a predictor of TRENDS. What you saw above with me missing on the $21.50 with the options. Had I perhaps looked at a momentum analysis, it probably would have demonstrated the bottoming formation and predicted a higher move up. Elliot Wave could have shown that silver was in a 3 wave, and therefore needed to be longer in duration than 1. It may have shown a reversal in trend as well.
Overall, I find this space fascinating. So much yet to learn. I can say, optimistically, over the next few years, gold will be significantly higher. Will it ever reach $3000? Who knows. These guys also show you when to sell tranches and take profits – but the risk is, you are completely out of the trade at $2300 and it keeps running to $3000. Trading is a person thing, and PMs are a cyclical thing, so who knows if 2023 is the end of gold, or if it’s just the beginning of a long run to $3000 over 7 years?
Best wishes to all!