Again the usual then, Oct 10, 2012, and now charts;

The old chart on the left suggest a price of $15 is a realistic possibility. We are not that far away from that but the count is getting a little confusing, that is, there are to many possibilities so we would not play it from here un till it reaches a low that is a little closer to that target. It may not get there this round if the count in blue is operational, but it will again later on.

See our blog of a year ago (Sept. 2011). We expected a nice rebound as soon as the C leg was complete. It took 3 months and then the stuff shot up by about 40%, came right back down and then repeated the exercise. What we have now is an A-B-C down followed by an incomplete a-b-c back up.  Some see a triangle here but it would take a lot of imagination even if it met all requirements, which it does not!. Others approach it from the fundamental side. Just heard a young analyst explain that the stuff can only go up given the monetary easing all around the world. Ignorance is indeed bliss. Perhaps he will be right but it did escape him that over the past 3 or 4 years there is no causal correlation at all.

In any event if this is a consolidation period the stuff could shoot up quite nicely. We think it is more likely an A-B-C X A-B-C, also known as a double zig-zag. The little c up may have a little higher to go but than it is downhill again.

This , I believe , is the Dec. Futures contract as it trades electronically. The very first thing that stands out is that this looks and smells like a completed a-b-c flat correction, that drops to the 4th wave of previous degree as well as a level where essentially 50% of the rise since around 1992 (about $4) is retraced. The spot price looks as if wave c is not quite complete, needing a small 4 and 5 which could be the case here as well and would take the price to, perhaps, $24.50. They main point , however is that this looks and feels like a correction and therefore one would expect new highs at some point in the future. But look at this;

This is spot silver, the futures actually got to $52.50 at the same time gold briefly hit $895. What stands out is that with an interval of 32 years the stuff stops dead in its tracks at essentially the exact same price level of $50 and, arguable, for the exact same reasons.

Futures (and other derivatives) are peculiar in that you can trade any amount provided that there is a counter-party willing to take the other side, the actual stuff does not have to exist, at least not in those quantities. When a contract starts trading it starts small and then the volume grows as the contract moves to the front (which is why the line on the top chart gets more solid). Then as its maturity date comes closer the contracts are offset and the volume contracts to a fraction of what it was, what is not offset will be assigned and actual delivery will be made from the short to the long. Most participants are there for the ride, not the destination and delivery is normally the last thing you want. The Hunt Brothers (you could not own gold at the time in the US) in contrast wanted the stuff and declined to offset and as a result effectively “cornered” the market, there was not enough stuff. According to some cynics the CBOT and COMEX, with the help of the CRTC “solved” the problem by first reducing the limits allowed per trader, upping the margin requirements and then allowing “liquidation” trades only. The net effect was to change the rules of the game, bankrupting the Hunt Brothers and saving the administration  the embarrassment of having to acknowledge , only 9 years after Nixon went off convertibility, that they were debasing the currency big time. This is happening again as margin requirements have been increased a few times already. The open question now is will they let it go higher? For some of the nefarious activities of the authorities at the time, Google the Hunt Brothers and Michael Maloney .

Today it was reported that silver had its largest drop since 1979. Not sure but it was Silver Thursday, 27 of March 1980 that the Hunt brothers , Nelson Bunker and William Hubert were caught with there their pants down . started the long process of going tits up from being billionaires . Only in Texas, USA.

This is the chart today;

Lets start of with conceding that I have no idea where this might go, other than listening to most people that are cock-sure it is up making me wonder at the very least. So lets just be objective! Common sense tells me that this should revert to the mean, all things do at some point. The mean to regress to is about $23 by the time this might happen. Next we should go back to wave 4 of previous degree, and having no idea what the count might be , it still looks like that might be at $27. Next we have the c=a vector symmetry, again around $27. Then there is that silly wave count, clearly wave c cannot be complete, a little 4 and 5 are the very least that is still needed. Again $27 stands out as a reasonable target.  Then there is the RSI, already at a 3 year low but still not excessive. Anytime now. The MACD is already up, but that means very little.

There you have it, $25 and the stuff is a buy, a nice 50% drop and about 62% of the rise from the lows of 3 years ago. Will it stop there? No idea. Is there going to be another billionaire ready to corner the market, not if they know the history, but that is the beauty of it all, they do not and that is why this can , and will, go on forever.

I like the symmetry, probable a buy at $27, at least for a trade, but do not go to the washroom while you hold the position, it could be painful.