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Gold/ The US Dollar/ The Euro/Silver/ Platinum Reaction Time Running Out for The Reaction

by James Sinclair, Jan 15/03

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I received an e-note today from Wolfgang D. that said simply: "The troops are waiting for you to opine regarding today's market." Wolfgang, I would have reported to you regardless, but thanks for the invitation. I am writing to you from Vancouver looking out over Burrard Inlet. It is a perfect place from which to view the gold markets. Let's start with a few definitions.

Resistance is not only line-formed by previous highs and lows, but in the case of gold at $357-$359, it is an offering of significance from one of the major non-Asian/Islamic buyers under $300. I make nothing of it, in the sense that it indicates any change in the market direction. It is simply a trader I know who wants to do something I find rather intriguing.

Karen wrote expressing concern about her positions in the shares because she was, as she put it, over-committed. Fully-committed and over-committed are two different things. Fully-committed is having taken a position that was predetermined to be the maximum position one wished to have based on The Five Golden Keys, the fundamental building blocks to a conviction that a long-term bull market in gold was in fact occurring. Over-committed is when credit is used to go beyond fully-committed.

Both of these inquiries are relevant to today's market and to, I believe, the community as a whole. Let's start with Karen. My answer to her is that the present market action is of no concern to me. As each day passes, the potential for a quick but uncomfortable drop-down, akin to the drop that we witnessed on the first cash market hit on the $354.50 price, diminishes. By Monday/Tuesday of next week, we may be able to put that possibility behind us.

Gold 1-Week Chart

Platinum 2-Year Chart

Platinum 9-Month Chart

Why, Jim? Well, it is simple. There is in the cash gold market a significant offering above the market. The cash market is a secret market that you can only know if you know the personalities in it and the major position takers. Something quite unusual is happening. There is a significant overhang of platinum supply for the platinum industry.

However, translated into gold, that above-ground supply is not really that big. There appears to be a very large take-down of that supply for which I cannot at this time offer a sound fundamental reason. Be that as it may, it has happened. The last time I saw anything like this in platinum was right before a $500 move started in the late 70's. Of course I am intrigued. Well, so is a major holder of gold with about a $70 profit.

The reason gold has been rising to nip at the bottom of the overhead is that the seller of gold has been selling some significant lots to a buyer willing to step up close to his offering price; thereby reducing the overhead supply. The market fell away as primary dealers knowing of this offering sold their positions; while offsetting them via Comex future sales against long cash bullion positions. The market did not fall away as it did the last time up in these lofty areas. Each day the overhead is being reduced. If this action continues, I believe the entire block will be sold by late Friday or late Monday at the present rate. If this occurs, you can expect that the dealers who sold Comex contracts against their long positions will cover those contracts taking this chop into the high side of the range between $357 and $362.

So you see, it is not all lines and squiggles. Lines and squiggles are simply representations of real bids and offers. Timing comes from knowing the size of what is out there and if it is being reduced or increased. Chops come from dealers offsetting their positions in front of bid and offers coming into them. Knowing one without the other is knowing half or less of the actual story.

Commonality is the other ingredient as the dollar and the euro are extremely important players in this game of hide and seek price. So, Wolfgang, today was a good day for the bull side in that the overhead offering was reduced and the troops were not scattered by dealers' late day squaring of positions.

If we can continue this action through Friday, we will in all probability have gotten by the possibility that those traders who haven't a real understanding of what is happening out there would tire out and throw their positions onto the market, causing a brief but uncomfortable drop. However, the shift to platinum might continue amongst those extremely wealthy-but-disciplined traders with huge gold profits that do not want to add to the now expanded dollar value of their position, but in the game, if platinum is going over $1000.

So as you can see from the chart, gold is chopping sideways at a slightly lower level and in all probability will by next week have moved into a wider chop with a higher top end. As such, the Williams%R indicator becomes a primary tool for market analysis from the TA standpoint. See the chart for an explanation of what it tells us. So to fully have an "EDGE," you need to first know the fundamentals. Then you must have a working understanding of the technicals. Finally, you need to know "Where the bodies lie" or who is buying and selling, and how big, plus why. Know all that and you might know the gold market.

Now to help Karen we need to know more. Karen, I have told you about the excellent indicator on www.gold-eagle.com that has made a lot of money for people for three or more years. The crowd has a hard time with change. If you traded correctly twenty-one times, you are certainly going to give it a twenty-second try no matter what I say. To the credit of Gold-Eagle.com, the parents of this indicator have said to their community, you, exactly what I have.

You must give them credit as I certainly do for their high degree of responsibility in pointing out the potential need to go to their long-term indicators which I am sure work best in a trending situation. The recent few days of greater weakness occurred as this indicator entered its historic sell area. It is no coincidence, but rather a fact of life that if you have good information, people find you. Karen, I feel from your communication that you are fully, not over-committed.

The worse case scenario here is a fast drop and a fast recovery. The best case is of course a move immediately to the $372 objective. The higher probability, certainly by Friday, is that we take this chop from the now $350 - $353 level to $357 - $362 level. Therefore, my feeling is that you are all right. If I am wrong and you are over-committed, then please remove the borrowed money from your position by doing whatever you have to do as you are not emotionally prepared for that type of risk.

USDX Euro

Euro FX (view chart)
USDX (view chart)

In terms of commonality, the dollar did not support lower prices for gold today and seems chopping at a low level. The euro showed a lack of attention to the dollar during that period when the dollar tried for higher levels.

Silver failed at $4.81, but has clearly declared itself a player in the precious metal ring. Also, please look at the platinum weekly chart. See you back in the fray when Hong Kong opens this evening. Soon, www.tanrange.com at "Jim's Mine Set" will have a new page where you will have the 24 hour prices and brief North American overnight comments from me if anything strange happens in Australia/ Hong Kong/ China/ London/ Zurich dollar-wise or gold-wise with real time prices to back it up.

Call me the Watchman!

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