Gold and Silver are Immediate Stand Up and Take Notice Markets

Richard Wyckoff described the three phases of a professional trade as follows:
(1) Accumulation/Distribution
(2) Mark Up/Mark Down
(3) Distribution/Accumulation

Connected players began aggressively shorting the Euro in the middle of October. This was the quiet, professional distribution at the expense of “The Chumps”. This distribution was followed by the nonstop media blitz over Ireland's debt crisis in November. This began the mark down phase. Connected players have begun to slowly cover their shorts into weakness at the expense of the spec and retail money (see charts below). The third and final phase of the trade will be completed with the announcement of an Irish bailout.

Connected Money

Euro and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Specs and Retail Money "The Chumps"

Euro and the Nonreportable Traders COT Futures and Options Stochastic Weigthed Average of Net Long As A % of Open Interest:


Meanwhile, the flipside of this drama reveals impeccable timing of money flows in U.S. dollar as well.

The temporary weakness in the Euro, also 'anticipated' by accumulation of long positions in the U.S. dollar market, has allowed connected money to profit and reposition on the short side into strength. When money flows transition from down to up, it will mark the resumption of the dollar's slide.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


The stand up and take notice markets are gold and silver. Connect money as covering their short positions into strength since August. As I have written before, covering into strength is a huge departure of control in the gold and silver. The weakness in gold and silver has not changed the flow of money. Connected money continues to cover their short positions into both strength and now weakness.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest"


The only other time we saw such motivated covering (buying) by connected players was 2005-2006. Coincidentally, well likely not a coincidence, it was during this period that Buffett announced that he had sold his silver hoard and silver ETF, better know as the physical demand vacuum, was first listed. What will they do for an encore in 2010-2011? Gold and silver are immediate stand up and take notice markets. History, or retrospect analysis, will clearly mark the time in which "it all changed." Unusual changes in money flows almost always foreshadow these inflections.

With that said, let me posting one of the most important charts within my arsenal of analysis. The presistant cluster of gold diffusion index above the 40 percentile suggests that connected money wants out of the U.S. dollar. The growing hostility of finger pointing within the currency wars has not gone unnoticed by connected money. Expect the price of gold to rise and accelerate as an increasing percentage of these outflows find their way to gold.

Gold London P.M. Fixed and the Commercial Traders COT Futures and Options Gold Diffusion Index (DI):