Once again I want to put the question before you…
What are the precious metals forecasting?
Aside from the ghost stories of easy analysis that sees conspiracy around every corner, what else could be at work against the precious metals? In 2012 I did my fair share of finger pointing at Op/Twist, which surely did act as macro manipulation due to its muting of inflation signals. And there is a lot of noise out there now about all the ways that all the forces arrayed against poor old gold are holding it down and manipulating markets to their own ends.
Here is the thing though; the charts are the charts. The previous post shows the updated SPY-GLD ratio and that chart is the reality right now, regardless of why it is the reality.
Look at this big picture monthly chart of gold. Does this look like a failing asset? No, not at all. But it looks like an asset that is consolidating the massive gains of the last decade. This is not bad for an item that is a value retainer, not a risk-on play. Expect the consolidation to continue into spring and if you are a gold bug you will not be disappointed if it actually does. Expect a lower limit of 1526 (worst bull market case). I ask again, what price should insurance be valued at?
I wrote “worst bull market case” above because a decline lower than that, say below 1500, while not killing the secular bull would put gold in a cyclical bear. Gold was cut in half in the 70’s before its final bull ramp.
The HUI continues to hold above the summer low, but the weakness there is troubling. With the big stock market approaching upside targets while the public is demanding that their financial advisers get them some of the action, we are in end stage dynamics regardless of how many more weeks or months this bull has to live.
The precious metals tend to under perform prior to broad market liquidations. Then, after full out panic inflationary policy is employed they tend to reverse and rise first. There has been something ‘wrong’ with that dynamic since the PM’s corrected the initial launch (HUI ‘should’ have held 460, our most important support parameter) off of QE3 hype. I want to know what this precious metals lameness is forecasting currently. With all the headlines about all the currency devaluation battles, keep in mind the need for man made (i.e. inflated) markets to correct (i.e. deflate) is always there.
Gold and gold stocks are counter cyclical. The fundamentals are boosted during deflationary liquidations. Yet ultimately, the play on them is ‘first mover’ to a new inflationary phase. They are not moving and regardless of their lack of value as a trading vehicle currently, they may be an excellent macro indicator if we are willing to put aside the conspiracy theories and just look at the charts.
They failed to lead or more accurately, may be leading the failure of current QE operations.
On balance, the gold stock charts stink. The only thing holding the gold stock case together is the higher low to the summer low. That is looking more and more flimsy in the face of a stock market nearing upside targets. We have our parameters on HUI. The juniors and explorers are making new lows for 2013.
I will gladly be a contrary indicator with the continued caution against bottom calling. But a breakdown in the gold stocks and continued weakness in gold would not only kill the bottoming case, but start the clock ticking on the stock market’s bull termination, as one of several indicators.
So have they stopped bottom calling yet in gold bug land? I ask because the sector may not bottom until they do.
 Adding the weekly chart of HUI showing the final parameter at 385. As noted previously during this decline, if any rebound to come is real, there should be plenty of time for risk averse people to take positions later, after an initial burst settles down. So know who you are as a trader. I would expect at least a bounce of some kind at 385 or so.
[edit #2] A reader wanted to see an example of what I meant by the precious metals leading both liquidations and inflation-fueled recovery phases. So here is a chart of HUI-SPX marked up showing the last two major occurrences. The notes on the chart are my personal answers to his question seeking examples.
Gold stocks decline to end their bear market as the stock market blew off its great bull. Gold sector led Greenspan’s great inflation and market/economic recovery. Gold sector led the great liquidation of 2008 and as many remember all too well, turned and burned to lead what NFTRH was calling Hope ’09 back then.
Hope ’09 is IMO still ongoing and due to finish up. The question I am asking is again, “what are the precious metals forecasting?”