As we transition from August to September within the course of this trading week, we very well could have just experienced the Black Swan event over the weekend, and its name is Harvey. Gold & silver are breaking out right now, and the dollar, well, look out below…

After being teased and pushed to the ground twice this year, the otherwise mature and conservative Gold is striking back.

SD Midweek covers the latest activity in all the important markets.

 

The Golden Jackass says: “The United States is going to poo-poo it”.

Was he talking about the latest developments in gold, the dollar, the euro, or cryptocurrency?

Overstock.com CEO Patrick Byrne took the gold community by storm when he proudly announced that he stores gold, food, and other supplies for his employees at overstock.com. Patrick is back to discuss the current state of the economy.

I never would have believed it—not in a million years—but it happened: the Cubs won the World Series, and The Donald is our new president.
In a nutshell, this is a story of human follies and bizarre events. There are always plenty of those. Let others tell the feel-good stories.

Underwater SundownWhat will be most interesting, will be market trading Monday through Thursday.  Precious metals are trying to put in an organic bottom and rally.  The dip buying proves this.  With signs that the physical market might be tightening and Indian buying about to rise, it’s not likely manipulation will succeed in keeping prices lower for much longer…

BubbleGold is a bubble which will burst, according to Rabobank chief investment officer Han Dieperink. In his latest update on financial markets, he expects gold to drop below $500 per troy ounce, much lower than the current price of about $1.315 per troy ounce.

There is an underlying argument that quantitative easing is not working, and zero interest rates are not preventing deflation. That being the case, there are many fund managers who are not only bullish on the US dollar in currency markets, but they believe its purchasing power in terms of goods and services is likely to increase. If this analysis is correct, then, it follows that gold priced in dollars will continue to fall.
Whether or not this undermines the gold price in the short-term remains to be seen, but empirical evidence tells a very different story.

In the US, while much is made of an improving jobs scene, the fact remains that in relation to the size of the workforce there is a greater percentage of working-age people not employed since the 50’s era of the male dominated workplace.
This is creating a two-way pull for gold and silver.
Declining commodity prices coupled with a strong dollar have hit both precious metals hard since mid-August with gold falling $130 at worst, and silver having been in continual decline since mid-July.
However, both metals have become oversold and as a result have bounced firmly off support at $1180 and $16.75 respectively. The chart below is of gold from its all-time high and its 200-day moving average.

Gold and silver drifted lower over the course of the week, with a challenge to the $1200 level for gold becoming a distinct possibility.  On Friday, silver plunged below support at $18.
History shows us that the most successful investors are value investors, and those experienced in precious metal markets are currently happy to buy the dips. Meanwhile, with the majority of momentum traders being short of physical gold and silver, it is hardly surprising they talk these metals down.

The current strength in the dollar has brought a new dose of uncertainty to precious metal prices. For the moment, it has been more a case of weakness in major currencies, particularly the euro yen and pound, rather than dollar strength. If signs develop of bigger shifts in favour of the dollar, markets could be signalling a greater degree of currency instability, leading the Fed to contemplate how to counteract the deflationary effect on domestic US prices.   This should generally be positive for gold after the current period of uncertainty.
Silver’s open interest is growing strongly as the bears increase their shorts. The preliminary figures for yesterday take open interest to a new record level:

This week gold joined silver in breaking down, setting a new cycle low, and selling off relatively hard.  Miners followed.
Gold joined silver in the general PM move lower this week, breaking down below all three of its moving averages on high volume. 
Trader Dan last week opined that gold was likely only holding up because of international concerns, and would probably move down to test 1280 if things calmed down.  It looks like his assessment was accurate.
Thursday’s break below 1280 confirmed a pattern of lower highs in gold.  That’s bearish.

bail inConfirmation of why Europeans might be buying physical gold arises from concerns over the financial health of Portugal’s Banco Espirito Santo, which has undermined share prices of the entire Eurozone banking sector.
The ghost of the Cyprus bail-in may be returning to the financial stage. 

Gold Open Interest 04072014 Gold and silver spent most of last week consolidating recent gains by moving broadly sideways, but their underlying strength was a notable feature.
The increase in open interest tells us that the rise in price was on the back of buying rather than a bear squeeze, which would have seen rising prices on steady-to-declining OI.
This is an important development, because it indicates that speculators are beginning to think the downtrend of the last 30 months might be over.