Upon reading several emails received after yesterday’s report, we continue to review parameters, what ifs and other thoughts this morning.
I find it interesting that one subscriber interpreted that the technicals I am using have a bearish bias that dominates the positive fundamentals of the precious metals, while another interpreted that I have a positive view of silver, while supplying me with a chart that shows a test of the summer lows by silver before a massive upturn. Still another subscriber mentioned the intervention* that was alluded to in this week’s report.
I think this spectrum of views is a good illustration of what we are dealing with during a time when good and normal technicals on the miners got violated with the break of HUI 460 and then a bad CoT structure manifested into violent hits on the metals.
The miners took technical damage and as a chart guy, you want me reading that damage. What individual players do with the analysis should be up to the individuals.
My job – in this context – is to tell you what I see technically while tuning out the noise. The breakdown in February of 2011 told us that the short-term uptrend at the time had been a Bear Flag (Alert #1). We then plotted what may have been (and ultimately did become) a neckline to a potential topping pattern, which broke down (Alert #2). Having these alerts came in handy for people who wished to actively avoid the worst of the damage.
Most recently, the technicals took a hit amid positive sector fundamentals (mainly the real price of gold: Au-CCI, Au-WTIC, etc. although gold vs. the stock market remains muted) and the normal decline (to reset sentiment and over bought status) toward what ‘should’ have been a buying opportunity at HUI 460. It may still prove to have been that, but the fact is that there is another technical violation and another Alert. This breakdown back below the neckline was not part of the bullish plan and with HUI below both the neckline and the moving averages this must be negated before I can tell you that we are not on alert for lower levels.
Back in 2008 I was expecting some sort of reaction in the gold stocks due to degraded fundamentals (again Au-CCI, Au-Cu, Au-WTIC, etc.). I held a core of gold stocks despite this expectation because I had the view of never being completely out of a secular bull market.
Now however, with all the moving parts in play (policy makers whom I view as ever more deceptive and dangerous), I do not have the tolerance to endure large draw downs even if they are on the way to very bullish outcomes. I can and will trade. Others should take what the chart above has to say for what it’s worth (it is after all, just a chart) and factor it into their own style. My style has become less tolerant than it was in ’08.
HUI is below an important alert point. When it gets above it you will see an unbridled bullishness burst forth from biiwii land. Until then however, the chart is the chart. I hold positions per its best implications. If the worst short-term implications look like they are coming about and the expected December bottom is due to come at lower levels, I will continue to manage cash as needed in anticipation of whatever buying opportunity lay ahead. Here is where long-term positions in actual metals comes into play. One is never really out of the PM’s in that regard.
So the gold stock parameter remains this: Huey, get your butt above 460 and the 200 day moving averages or else you are vulnerable technically, amid the noise that is and has been likely into mid-December.
Transitioning to gold itself, it is unsettling to think about the power of the entities that may be managing the precious metals behind the scenes. I have always believed that these orchestrations can only be temporary and indeed that is what I expect this time. Gold is technically bullish vs. USD and the Euro by the weekly chart below.
In USD, gold bottomed and broke consolidation and has turned up into a new trend and in Euros it is and has been in a bullish Ascending Triangle.
But what else do we have in play? The CoT report has been curious since it started becoming bearish even before the QE3 announcement in September. Okay, we factored it and thought “it’s just da boyz doin’ what da boyz does” with the precious metals at sensitive times.
As the gold miners declined toward 460 and gold and silver took some initial hits everything looked good and bullish because this is how it goes for a precious metals value holder (physical metal) and/or traders (miners). All part of the game.
But we got through one sensitive time (QE3, election) and as I have been trying to illustrate for many weeks now, we are thrust right into another (Fiscal Cliff noise, FOMC meeting, stated ending of Twist). The concern is that the CoT has over the last 3 weeks done what it does not often do and reversed itself in a bearish direction after beginning a new trend toward a more benevolent structure. This is what brings on the metaphor of the Butch Cassidy and the Sundance Kid posse for me: “Who ARE those guys?”
The analysis remains bullish because no thugs or goons are going to change the truth beyond perceptions management. But again we should consider that to win a war we need to stay alive while the bullets are flying in order to claim final victory.
We have Fiscal Cliff, FOMC, capital gain selling, tax loss selling and certain commodities and markets indicating bullish things to come with a new inflationary cycle. My tin foil hat tells me that the most strategic sector to this new phase is being willfully attacked. Fine, it’s all part of the process.
I’ll personally continue to remain in the game and ready to gear up if and when the alert goes away. Conversely, I’ll scale back to avoid damage if need be. Also, remember that NFTRH is not a Gold Bug newsletter. I just happen to be very bullish on the monetary metal, as I have been since 2002. There is a world full of assets that appear to be looking constructive for a trade. If the bull theme continues to kick in for the broads I’ll plan to add there (global stocks, big tech, commodities, etc.) first while the precious metals drama plays out.
* I have always tried to remain mostly on the sidelines with the conspiracy stuff, but gold – and the leader, silver – are often manipulated in various, sometimes brilliant ways. But these operations have always proved transitory and that is what I expect for this one. We should mostly leave it for other writers to flesh out the details of the conspiracies because we do not want to be caught rationalizing when all the evidence we needed for our particular stance was right there in black and white at the CFTC (CoT) and right there in every FOMC statement since September of 2011 (Twist).