This post was just published on ZYX Buy Change Alert
Last night, we informed subscribers of ZYX Global Multi Asset Allocation Alert of the Spiegel article and its significance for various asset classes including gold and silver. ZYX Global Multi Asset Allocation Alert primarily focuses on the long-term. This is where long-term calls on gold and silver are made.
For the very, very short-term, our rating on gold, silver, and miners is now neutral with positive bias; however for the short-term, our rating is neutral with a negative bias.
It is a matter of time frame as explained below.
Spiegel, the German magazine, reports that the ECB is considering pledging unlimited bond purchases to limit the maximum yields on sovereign debt.
Hank Paulson, the Treasury Secretary of the United States, at a time of financial crisis, is famous for telling the congress that he needed a bazooka. Paulson got the bazooka from congress. He and the Fed chief Bernanke liberally fired not one but many bazookas.
In contrast, the authorities in Europe have been constrained. They have been taking incremental steps, but have been reluctant to fire a bazooka. Draghi is bringing new boldness to the ECB. The ECB may be about to fire the big bazooka.
The present stock market rally started in earnest after Draghi’s statement about future action, “It will be big enough.”
One of the big concerns has been if Germany will go along. Previously the Bundesbank president made statements that caused some to believe that Germany is not wholeheartedly behind Draghi. However, Angela Merkel, the German chancellor, last week clearly stated that her thinking was in line with the ECB as long as certain conditions were met.
If Spiegel’s report is correct, expect fireworks ahead.
ECB probably can accomplish the task for about 100 billion euros by buying Spanish and Italian debt. Compared to the bloated balance sheet of the ECB, this is not a big number.
Since such a move will not dramatically increase the balance sheet of the ECB, at least in theory gold and silver should fall precipitously. Gold and silver bulls are positioned for a much more dramatic ECB monetary expansion.
Theory is one thing but real life in gold and silver trading because of the popularity of ETFs such as GLD and SLV is quite something else.
At The Arora Report, we have developed sophisticated algorithms that attempt to estimate the actions of the momo crowd and the Smart Money from the trading data across the globe.
Our algorithms are showing that gold and silver trading is mostly under the control of the momo crowd. The data also shows that the momo crowd is primarily American, not Chinese, Indian, or European.
Momo crowd is quite distinct from gold bugs.
One probable scenario is that the momo crowd will run up gold and silver leading into the news and the Smart Money will take advantage of the strength and start short selling.
Smart Money is very lightly selling gold and silver on the run up, but at the same time lightly accumulating stocks of miners as shown in the table.
| SYMBOL | SMART MONEY BUYING IN MILLIONS OF $ | SMART MONEY SELLING IN MILLIONS OF $ |
| GLD | 4.38 | |
| SLV | 7.23 | |
| ABX | 4.78 | |
| NEM | 5.23 | |
| GDX | 4.43 | |
| GDXJ | 0.71 | |
| GG | 0.35 | |
| SLW | 8.26 | |
| PAAS | 2.40 | |
| CDE | 0.83 |
Smart Money in our parlance is the ultra sophisticated money that knows more, that knows early, that has a tremendous amount of analysis powers, and that has extensive resources.
The data is for the day.
We monitor gold and silver trading data from a variety of instruments and sources from across the globe. The above table is only a small representation.
What To Do Now?
Short-term accomplished traders can take advantage of this opportunity after carefully studying this post. For those who are long-term investors or are not accomplished short-term traders, the risk is too high. Due to the high risk we are not officially entering a trade here.
