A Melman Minute
| By | Leonard Melman |
|---|
Well, at long last the selling in gold and silver has abated and we are witnessing a modest rally as indicated by the daily charts for both metals.
As might be noted on gold's chart, rallies back against the downtrend have been quite frequent and, in chart terminology, a 'pull-back' to the point of previous breakdown near $1,240 would be a relatively normal reaction within an ongoing down trend.
The situation in silver is similar as the white metal's chart also shows several rallies within the stronger recent down trend.
However, having pointed out that rallies within continuing down trends are not at all unusual, we cannot help but note at least three important fundamental developments which could indicate rising pressure for a true reversal in these metals. These are the rapidly escalating situation in relation to the "Islamic State in Syria" or "ISIS" surge; the sudden and quite scary developments relating to the lethal Ebola outbreak and the potential for a quite powerful downturn in general securities markets.
ISIS continues to expand their areas of interest which now range from the northeast portion of Syria through northern Iraq and most recently, they are threatening to surge into perhaps the most socially liberal country in the Middle East, Turkey. An article from the Associated Press published this morning quotes Turkey's President Erdogan as declaring that Kobani, a town on the Syrian side of the Syria-Turkey border, could fall into the hands of ISIS fighters.
The article then notes that, "…capturing Kobani would give the Islamic State group, which already rules a huge stretch of territory spanning the Syria-Iraq border, a direct link between its positions in the Syrian province of Aleppo and its stronghold of Raqqa to the east. It would also give the group full control of a large stretch of the Turkish-Syrian border." (Our emphasis)
Over 200,000 people have already fled the Kobani area - and indication of just how fearsome ISIS warriors have become.
It should also be noted that to the east, ISIS fighters appear headed in the direction of Iraq's historic capital city, Baghdad. If that seat of government was to fall into ISIS hands, we believe it would likely disrupt the entire nation of Iraq, which happens to sit on the Iranian border.
Clearly, the possibilities are wide open for a sharp escalation of hostilities in that region.
Next, fear is growing that the deadly Ebola outbreak could spread from its previous confines in West Africa. America just recorded its first 'imported' carrier in the form of a man visiting Dallas after having been in West Africa. Before he entered a Dallas hospital, he may have contacted numerous people in the preceding two weeks - and there is no telling yet how many possible contacts each one of those persons might have had.
Spain is also dealing with its own outbreak as a woman who treated Ebola patients near the heart of the outbreak was found to be infected and is now confined to a Madrid hospital. Authorities are now investigating to determine just how many people she might have contacted.
Inside Africa, the figures are startling. The last confirmed death total now stands near 4,000 and entire communities are being cut off from the rest of the world. 'Guesstimates' of the total number of potential deaths now run into the tens of thousands and economic effects are being felt as well. Airlines now fear flying into and out of West African cities, cruise liners are seeing a sharp drop in reservations for Mediterranean cruises and most forms of commerce between nations such as Liberia and the rest of the world have been almost totally curtailed.
Third, securities markets are encountering a wave of selling of late and while they have not yet fully reversed the powerful rallies which have been sustained since 2009, there are indications a change may be in the winds. As noted on the following five year chart of activities in the S&P 500 Index, the recent losses are beginning to become significant.
However, it must be pointed out that the S&P 500 has encountered numerous selling waves of equal significance before and all of them have eventually turned out to be nothing other than minor interruptions within the powerful and clearly evident up-channel which has held throughout the past three years.
Gold and silver have a long history of moving counter to important general securities trends - particularly during the past three years since the PM peak in summer, 2011 - so if this recent market selling did continue, that could be an important indicator for improving precious metals markets.
Overall, we believe this time frame could ultimately be one of vital importance if (a) gold and silver fail to sustain these rallies and gold breaks below important chart support at $1,180 or (b) the combination of these and other headlines finally breaks the complacency among the general public, leading to rising levels of both social and economic fears.
EARLY WEDNESDAY DATA as of 7:15 AM PDT
Dow Industrials, 16,737, + 18
TSX Index, 14,510 -765
Gold, $1,215, + $3
Silver, $17.26, + $0.02
Base metals, (average) little change
Mining share indexes (avg.), + 1.4%
US Dollar Index, 85.76, - 2 basis points
TYX Index (30-year bond rates), 3.048%, - 8 basis points
Crude Oil - $87.15, - 1.70