Monday, January 7, 2013

The Silver Shake-Out Indicator

We may be nearing the end of a long consolidation of over a year in gold and silver. There are many signs of this, but I would like to focus on just one here - the silver shake-out clue. Since the beginning of the gold and silver bull market, there has been a certain pattern happening like clockwork signaling the start of each of the major advances of the precious metals. You can see this clue develop over the course of each of the major sideways consolidations of many months. I recently detailed these - see  Is There Another Silver Shake-Out Coming? This shows the cases where this has played out before. I will not clutter this piece with that, you can peruse my blog article for such clutter. I will just show here the generic silver shake-out:

You don't have to be a psychologist to see that this pattern seems to be designed for maximum investor discouragement and is ideal for short-term owner release of shares and/or metal. There is also the 2010 version of this, which was more pronounced that the previous cases. There seems to be a law with these shake-outs - they get progressively bigger, and the following climbs get more massive as the bull market continues. The 2010 case looks like this:

This was a somewhat malformed iteration of this fractal with the triangle formation being a pennant, not the flat bottom triangle like the others. But the 4 bottom development is there, and the 4th bottom shake-out was bigger - the biggest of the whole bull market thus far. And consequently, the following climb was the most massive yet:

Is all this 1,2,3, and shake-out, just in front of the monster climbs just a coincidence? Not at all likely. What are the odds? Technical analysis and fractal analysis measure all kinds of strange things in nature and the human heart. And I suppose it could well quantify what evil men do. Silver price manipulation over the years has been well documented, and I won't go into that here. But I think this repeating pattern may reflect a desire to suppress the silver price and separate as many ounces of silver from their owners as possible, just when other parties would like to buy.

Why does silver get this shake-out treatment while gold seems relatively unaffected? If you look at these four phase take-downs of the past and compare them with what gold was doing at the same time, you see that it is overwhelmingly a silver thing. Of course, silver is more volatile than gold, and any move down by the pair is more severe in silver. But there is a clear pattern of separation between gold and silver over the course of these consolidations, with silver progressively getting a more severe take-down than gold each time. The silver/gold ratio charts reveal this. For example, for the 2007 shake-out:

This ratio chart is not the flat bottom triangle pattern, but a more severe beating and a lower low each time until the big shake-out. By the time the shake-out happens, it is almost imperceptible on the gold chart. Why does gold get a pass on these consolidation-ending smack-downs?

By the end of a long bout of price suppression measures, could it be that the silver market is much more easily manipulated that the gold market? This was directly stated in an article from mid 2010 Silver Short Squeeze Could Be Imminent :
The silver market provides a window into what is happening in the gold market. Because the silver market is very small and its short position is so concentrated, its price is easier to manipulate than gold, but the same manipulation is taking place in gold on a much larger but less noticeable scale
PR Newswire (
And concerning the shake-out shown above of early February, 2010, the biggest of the bull market thus far, the article had this to say about the orchestration of that event:

On February 5th, we witnessed another sharp decline in silver prices...  The temporary wash out that occurred on February 5th was predicted by independent metals trader Andrew Maguire , who came out this week exposing the fraud that is taking place in the paper silver market. On February 3rd, Andrew Maguire wrote Eliud Ramirez , a senior investigator for the CFTC's Enforcement Division, giving him the "heads up" for a "manipulative event" signaled for February 5th.
He warned the CFTC that JP Morgan was about to manipulate down the price of silver after the release of non-farm payroll data on February 5th. Andrew said that the takedown would happen regardless of if employment was better or worse than expected and the price of silver would be flushed to below $15 per ounce. During the next couple of days, silver was crushed ... to a low of $14.62 per ounce.PR Newswire (
So where are we now on the shake-out map?

We have formed our three bottoms and the flat bottom triangle. And we have the silver/gold separation of all the other shake-outs:
We have a bunch of cranky silver owners. We have everything but the shake-out. Nothing says the end of our present consolidation has to abide by the previous script. But if you are a holder of gold, and in particular silver, do not be surprised if we get this kind of move soon. And if you are looking to add to your exposure to silver, you may want to watch this pattern, because you don't want to buy in front it. It may resolve into the next major upleg without a shake-out, but if it happens, it will be a prime buy point.

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