/GC breaking down out of the triangle:
Yes, it's exactly what was
expected, only a day late. The gap under $1,680 still defines the area that will build the next long-term consolidation/support level. Until it can be filled, buying demand remains (confirmed by activity and numbers behind the scenes) and a spike high is still in the cards.
The bull trend in gold has not changed.
Every time a major triangle breakout to the downside has hit, it's been in the face of increasing buying pressure. A price collapse doesn't gain steam when running into a base like that. Besides, $50 daily ranges have been typical of late, so the latest drop has been nothing major - in fact, considering what it took to make the dip occur, I see it as a buying opportunity (esp. GDXJ, RGLD).
Japanese intervention has been officially denied. That generally means it is more likely to occur in the near future, but if it isn't used within days, I think that may be withheld to put a damper on the next spike in gold's price. If it took a global unwinding to knock gold down 5% (esp. when 10-20% in one day would've been expected, as happened in 2008), the greatest effect of a JPY devaluation wouldn't be seen until another rise.
Holding off gold's buying demand for as long as possible and preventing a breach of $2,000 is more important than crushing it. There's too much buying demand to do that for long, though: the pressure must be released at higher prices to entice strong holders into selling.
I'm expecting the
GLD Puke Indicator to trigger this week. Also of note is that
GOFO rates (outside the US) have steadily risen to well over double what they were six weeks ago - indicative of increasing demand.
Even more interesting is that, on August 22
nd, the GOFO rates for 3 months and longer took a dive while the 1-2 month shot up. To kick those rates around like that means that a
lot of gold was needed somewhere for the next month or two: September and October; the months that are showing extreme levels of delivery orders in both gold and silver.
At present, there are over 300,000 open futures contracts that could stand for delivery this December. Even with the volatility in gold over the past few weeks, very few of the longs holding those contracts have been shaken out. If a little over 5% of those contracts are delivery requests, the COMEX would be wiped out. Normally, plenty of contracts close before then, but with recent action many longs are staying and requesting delivery. It wouldn't be surprising at this point to see 20-30% stand for delivery, which is why reducing the 300k open interest is so critical.
The games we're seeing now are efforts to reduce that 300k long position. Seeing as how there have been repeated failures to do so, a final option is to relent on selling pressure and allow price to rise so that some of those longs take
paper profits. Since paper can be conjured by keyboard and handed out like
Pez, that's a far better short-term solution than a bullion bank or commodity exchange default.
One issue with that is the paper profits may be employed in purchasing gold outside of the commodity bourses (just as China has been using its US debt reserves to finance real asset acquisition around the world and even bail out Europe), leading to reduced availability for the exchanges to supply further long contract holders in the future. The cycle continues with prices rising each time. This is a lose-lose situation.
