Free(Gold & Silver) Markets ?

The following two charts are courtesy stockcharts.com. They measure percentage movement in the silver price.

The first chart shows a steady price increase from Sep 2005 to April 2006. The % price peaked at 110% in May 2006 and then collapsed to 35% by mid June.

Free market action? Maybe, but now look at the next chart.

Can the supervisory authority look anyone in the eye and say: "Yep. This market is free and fair"?

Note how the % movement dives every quarter on the quarter end. Of course, this might be deliveries being effected by the mines into the quarter end but, if so, then the CFOs of these mines need to be fired for incompetence.

More likely, this is evidence of either open derivative (bull) positions being closed out at quarter end, or new shorts coming in towards the end of the quarter to thump the price. Regardless, it is evidence of a market which is not subject to the "free" forces of supply and demand. Free markets do not behave in this manner.

Now look at the following chart of the gold price (courtesy http://quotes.ino.com/chart/?s=FOREX_XAUUSDO&v=d12 )

Note how the price also seems to dive from time to time, and on a fairly rhythmical basis.

Now look at the relative strength chart of silver:gold (courtesy stockcharts.com)

Note how volatility started to creep in around April/May 2006 when the silver price copped it?

Something stinks here, and it seems quite possible that the smell is that of a concerted effort to suppress the story being told by the following charts.

The first chart is that of a 3% X 3 box Point and Figure reversal of the gold price.

This chart is showing a clear break-up which, if the gold price cannot be "thumped" by external forces, seems likely to break to new highs - with a vertical count target of $1,400 per ounce.

Personally, because I have been watching the Central Bank behaviour with a jaundiced eye for some time now, I would not be surprised to see a concerted effort to hold the gold price back.

By contrast, the silver price P&F chart, whilst exceptionally strong, is less strong (not surprising given that every quarter end the price gets thumped).

On the other hand, the relative strength chart below ($silver:$gold) has a shown a silver price that has been inexorably rising relative to gold.

In 2003, the ratio was .0124. Most recently it was .02019

What does all this mean?

For one thing, it's telling me that pressures have been building - in particular, in the silver market. Notwithstanding the regular thumping that the silver price has been getting every quarter, and notwithstanding the increase in volatility in the RS chart, the ratio is holding at around the 0.02 level.

If/when the gold price breaks to new highs, and given the shenanegins in the silver markets, I would expect all hell to break loose in the silver price.

The only fly in the ointment is the ratio of the $XAU to Gold

For some reason, the $XAU - which is usually a leading indicator with respect to the gold price - does not appear to be anticipating a rising gold price. Maybe I'm not alone in worrying about the Central Banks' predisposition to 'manage' the markets.

Of course, there is another way of looking at the above chart. It might very well be reaching for a bottom - although a horizontal count target of 18.77 is still possible.

Let's look at the $HUI chart be itself

It seems to be consolidating nicely above its rising trendline. If it breaks up, the target count move is likely to be around a 40% move to the upside.

Could it break DOWN?

Not according to the goldollar chart - courtesy decisionpoint.com

This chart has shown a classic fan formation, followed by a break-up from the third fan line, followed by a consolidation - with the current low holding above the November high. This is very healthy technical action.

Conclusion

If the gold and silver prices get thumped over the March Quarter end, I would seriously consider buying into weakness. The April to June quarter should prove to be very interesting indeed.

However, if they do NOT get thumped over the quarter end, I would advise caution. It might indicate that upward pressure on PM prices is abating.

This will be an interesting week ahead. My 'gut' is telling me that the probabilities of an up move are growing, but that's not good enough. We need to wait for the evidence to start manifesting.

If you're looking for straws in the wind, then how about this chart of SSRI? (Chart courtesy bigcharts.com)

The On Balance Volume Chart has been showing distribution

Unfortunately, the PAAS OBV is showing the same distribution

Overall Conclusion

Best to wait. Patience is a virtue