Topic: Gold: I smell a trap - page 11. (Read 90826 times)

Huh? More sophisticated than what was presented, but not more sophisticated? Either there's an apparent contradiction, or I'm reading all of that wrong. Not important. Here's what is:

Since September 26th, volume has been declining overall. The 144-day MA was breached on an intraday basis (not really important in regard to volume, just pointing it out as a landmark). It was retested on the 29th. The volume on the 29th was low compared to the two strong down days that week - the 26th and 28th. Volume remained low for the next two days as gold rose from about $1,600 to almost $1,680.

Then on October 4th, the volume was higher than during the past three up days, yet the close (the only price that matters for market players that matter) wasn't able to breach even the prior day's close. In other words: volume on the down days may have spiked higher than on the up days, but the price remained higher than the previous down day - the opposite of what increasing volume on a decline should do if the decline weren't exhausted; also indicative of strong buyers being active instead of momentum followers.

The price has continued to drift higher even as overall volume resumed its descent. With very little volume and price continuing to move higher, increasing volume will be necessary to reduce price the higher it rises.



For the week ending today, October 7th, looking only at the price gives a heavy picture. It's reasonable to expect further gold price drops in the immediate future. Combining price with volume, the direction is less certain, throwing almost a 50/50 chance. This is where open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison.

As discussed yesterday, the open interest has been declining gradually - almost no forced or panic liquidation since the end of last month, and even that wasn't very significant in size. That measured decline is normal, whereas a sharp drop would be leveraged players being squeezed out or underwater longs cutting losses. What this means is that it's virtually a certainty the remaining contracts are what form a normal baseline for the market, like hitting bedrock while digging through topsoil. Further liquidation of size is therefore simply not in the cards.

From analysis above, it's easy to see that price is important, but it is only one metric. It's a representation of capital flow. Volume is necessary to determine the overall strength of capital movement. Open interest provides a measure of how much movement is left. It's entirely possible to use only the latter two as trading guides (V & OI), but then you wouldn't have any way to know how much you gained or lost when closing a trade.

In the middle of a move, it's possible to use the above three factors to gauge how far the shift can go in either direction. When at extremes, they show the buying and selling ranges. I prefer certainty over just getting the "feel" of a market. The way I see it, advanced price chart analysis in the form of Elliott waves and such (beyond trendlines and Fibonacci levels) are attempts at extrapolating the interplay of volume and open interest from the price itself. That makes sense for equities and other asset classes, but why bother with divination when those values are readily available for commodity markets?

SLV from the GGR:



The price was decimated, yes. The volume during the knock-down was much less than it was during the hit in May. If taking into consideration when the price drops occurred that caused the gaps, a bevy of questions arise. Looking from the opposite side, again there wasn't much buying at all needed to stop and partially reverse the selling pressure.

I haven't bothered looking into direct numbers or proxies to open interest for GLD or SLV. Again, it's a situation where the data is available for the actual asset so why complicate and confuse matters by calculating all manner of indicators from the ETF?


Overwhelming reliance upon price movement for explanation spoke loudly. It's good to see other elements of your analysis being clarified upon.

So does the relatively low recent volume suggest shorting the market? Personally, whether the markets go up or down doesn't matter - strong, dividend-paying (preferably international) companies being held for the long-term won't go belly up just because of a market rout.


I will if you can explain how gold itself is a Ponzi scheme when it promises nothing nor returns anything. What is the dollar, if not a Ponzi scheme - a promise that pieces of paper have exchangeable value even though the material itself has no unique physical properties?

Here's a rough estimate of Ponzi math:
(Artificially Decreasing Supply) + (Rising Incentivized Demand) == (Rising Prices)

The artificial aspect is an intentially forced restriction or flooding of supply (think diamonds). Incentive can be the promise of xyz% gains or that an item of greater value can be redeemed in its stead.

Gold is being produced, refined and distributed as fast as possible around the world. Its demand is being driven not by a desire for the metal itself, but exposure of the fraudulent nature in the existing monetary system.


Wait... are you advocating faith? Where are these lines of buyers for gold? You're right that the decision comes down to the individual. This entire thread has been an excellent opportunity to test theories, assess assumptions and reaffirm conclusions; not to mention it's been entertaining as well. Thanks!


Really? Does the archivist need to kick into gear and post several examples of US-centric perspective against numerous links showing global gold demand?

The latest information posted was good... and it was all US Fed and US-based exchange information. Where is the worldwide view? Wait, I think there was one chart on China.

I'd written this before getting down this far in your reply:

"... open interest is critical, despite the fact that it's only the OI for the COMEX futures. For as long as it remains the dominant futures exchange, it is a basis for overall global market trading comparison."

COMEX data is representative of 24-hour, global trading. It is a proxy, like SLV is a price proxy for silver - not perfect, but a good start; some of the information is also unavailable elsewhere, and is still largely transparent by comparison to other sources and methods. In the same manner, the US Fed data is a good start for getting a handle. It's important to look at the whole pie, of which the US holds a decreasing share. Thus its broad relevance, as well as that of its data (both US Fed and COMEX), are declining.

The rest of the world still needs to eat and have functioning economies. As everyone else catches up to a stagnating western world, the top 1% will have to expend much of their 75-80% of overall wealth in order to keep from falling all the way down. Socialism has nothing on wealth redistribution by capitalism in action on grand scales. Except for the pain, death and destruction parts - socialism (or centralized government by any other name) takes the cake on those, but I digress.

I welcome questions and efforts at finding holes in my arguments (which were built by learning from some of the greats, not entirely due to a miraculous lone exploration). At least offer a stronger assessment than "what does this look like". If you can trade the short-term using cycle analysis, keep doing that. Just don't get rid of your physical metal - accumulate more.


Yes. Where is he? Busy working, unemployed, going back to school instead of reading all about gold and finance?

You have to keep things in perspective: we are in the thick of things, on the front-lines of financial warfare. We're discussing topics that even a lot of traders might have difficulty grasping. How many people actually are where we are? Why are there so many who willingly pay for advice and explanations like ours? Where are all the other traders whom have made a tidy profit? We're part of a very small segment of the total population.

Step into another's shoes and it becomes easy to understand the rationale, if not the emotional resistance to comprehension. Joe Sixpack has probably heard the rumblings by now, but he still has barely an idea what's really wrong or why.

Imagine him at the beach, when the water suddenly starts rapidly receding way further than normal. Being tsunami experts instead of financial gurus in this scenario, we'd be speeding away from the shore while the average fellow remains, probably even after being warned of what's coming. Whether he stays because of curiosity, normalcy bias or any other reason, he will only recognize what's happening when it's too late. Even highly educated people are susceptible to this if they don't have the wherewithal to fathom these titanic shifts in such an abstract concept as finance (or blinding themselves based on erroneous assumptions as Bear Stearns and Lehman "geniuses" did).


LOL - well, that changes everything.

Enjoy the weekend!