Silver And Technical Analysis - Painting A Masterpiece

November 15, 2013

Technical analysis will always have a place in the speculative marketplace. Its function may not be reading tea leaves, but its connection to fundamentals is about as useful as the modern day consumer price index.

That limitation, combined with the allure of speculation, makes technical analysis a tool for exploitation by those who have the ability to "paint the tape".

Technical Analysis

Technical, the veritable tail wagging the dog of asset analysis, is meant to establish the likely direction of a market so that traders can position themselves accordingly. A dizzying array of tools is employed, ranging from moving averages to complex chart patterns and statistical patterns (used to identify price direction and momentum).

Confirmation of accuracy can often be made in retrospect and in a sort of absurd circular causality. It has become a place to go for more information in markets that make less and less rational sense.

Ultimately, its visibility and accessibility fuels the fires of uncertainty for the non-trading value investor - but especially for typical gold and silver investors. 

Price Manipulation

Gold and silver are manipulated. The suppression of prices will probably go on until the COMEX or the paper and physical market completely separate.  There is no interest from ANY big player in stopping this game. The West wants to keep it going as long as possible. The East wants to keep buying at artificial prices as long as possible.

The Chinese know that eventually, to challenge the reserve status, they will have to peg their currency to gold, but ONLY at time zero or in other words - at the start.

While technical analysis make appear relevant for the long term, or in retrospect because of price manipulation, short to medium term technical indicators are meaningless for long term investors.

HFT and the Rise of The Bots

Upwards of seventy percent of all equity trade volume is run in "dark pools" (or off exchange) by high frequency 'trading' algorithms.  This is the same system that caused the flash crash in May 2010; the same programs that cause hundreds on mini crashes each day.

Many of these programs are (also) privileged to have first 'look' at trades before they execute.

Why do you think it's so cheap to day trade?  

Or, they initiate spoof trades meant to move other bots in one direction or another. And price discovery based on any semblance of fundamentals is long dead. A regulator could be placed in the lap of each one of the traders pushing the buttons and they would not have a clue.

With the absence of a market-maker or someone willing to take the other side of a trade in the name of liquidity, these markets are by definition fragile to violent market-breaking extremes.

The existence of large position allows the big players (the silver and gold bullion banks) to move the market any way they decide by manipulating the price, but also by creating a desired technical pattern to further move trading based on how they see fit. 

Somewhat analogous to an artist's interpretation of the world - the bias is usually clear if one bothered to look below the surface.

Technical analysis and chart interpretation are useful for professional traders and amateur gamblers, but worthless in a market where fundamentals are buried and the where massively powerful players control the action and paint the tape.


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Silver has the highest electrical conductivity and heat of all metals.