Drawing The Line

Well, here we are. After a week spent catching falling knives, you'll recall that I committed to time, date and price a few days ago. For a refresher, read this: http://tfmetalsreport.blogspot.com/2011/01/1600-gold-by-june-10-2011.html and this: http://tfmetalsreport.blogspot.com/2011/01/end-is-near.html

In attempting to call a bottom, I frankly couldn't ask for more. First up, the USDX is sick and dying and looks terrible. It is struggling mightily to maintain its footing above critical support at 78.50, the bottom end of a range that goes back to November. Recent positive correlation notwithstanding, if the PMs are to reverse course out of this current correction, they will find strength from further weakness in this index.

Next, look at crude and copper. Both rest upon rather critical short-term support. Rallies from these levels will also lead to increased vigor for the PMs.

OK, so the question of the day is: Are we seeing a bottoming process yet in the PMs, at or near the levels predicted of 1320 and 26.50-65? The answer is yes, so far. Take a look at this 15-minute silver chart. Note the first low came in at $26.54 and the almost immediate bounce. What I'd like to see now is a re-test of the low and then consolidation for a day or two between $26.50 and $27.30 or so. Then, a late week break back UP into the 27.60-28.00 even area.

As you might expect, a similar picture has emerged in gold. The low this morning was $1321.90, right above the critical 1320. Again, a sharp, nearly $10 rebound. Like silver, if we can get a re-test of that low and then consolidate and move higher, overall sentiment will begin to shift back to positive.

And, ultimately, sentiment is what we're talking about here. I ask you again, have any of the fundamentals changed since 1/3/11? Is the U.S. federal budget in balance? Is the U.S. economy roaring ahead or is it stuck in stagflation? Are 80% of all U.S. states on the verge of bankruptcy without federal intervention? Are the major, TBTF banks technically insolvent and only kept alive by accounting rule changes? Is the EU in a state of complete calamity, led by the insolvency of several member states? With significant, cost-push inflation now rearing its head in all parts of the globe, will unrest and disorder only get worse or better? Answer these questions and then ask yourself if it even matters whether or not I'm right about 1320 and 26.50. If those levels fail, (and they might. I'm not Nostrafuckingdamus) we'll simply fall back to 1280 and 25 and buy more there.

Lastly, I leave you with these three items. One old, two new. First, read the latest from Patrick Heller, a guy with his finger firmly on the pulse of the physical market:
http://news.coinupdate.com/gold-and-silver-prices-continue-falling-physical-inventories-dwindle-0639/
Then, reread these two missives from the Great John Embry. The first, http://www.sprott.com/Docs/InvestorsDigest/2010/06_23_2010%20Gold's%20on%20the%20cusp%20of%20a%20parabolic%20move%20up.pdf was written near the bottom of the last major correction back in July of last year. This new one is so fresh, its dated this coming Friday. http://www.sprott.com/Docs/InvestorsDigest/2011/MPLID_012811_pg003Emb.pdf

Keep the faith. We will win. More later. TF


12:15 UPDATE:
So far, so good regarding the consolidation above our levels.
Perhaps President O'bottom can cook up a little $ strength tonight. We'll have to wait to see what the teleprompter tells him to say but its already beginning to leak out:
http://blogs.abcnews.com/politicalpunch/2011/01/exclusive-president-obama-to-propose-budget-freeze-and-earmark-ban-tonight.html