The index went with its implied fundamentals and gapped up at the open. The implied fundamentals got a boost with the worse than expected ‘jobs’ report. Tuning out the ‘inflation bulls’ and ‘commodity/resources bulls’, the best backdrop for the miners will be when the economy is decelerating and gold rises vs. commodities (i.e. the real price of gold rises).
So this morning’s pop made sense. So too does the drop, as traders take profits. The 10 minute chart shows a point where the pullback will not make sense and would start to become abnormal. Yes I know, how long do we have talk about ‘abnormal’? Well, as long as it takes for a new rally to prove itself I guess. Until then, ‘abnormal’ technical issues are the gateway to further bear market levels. So we should respect them.
The 62% retrace at 325 comes with a shelf of visual support. I do not want to see this support violated on a closing basis today. This all looks to me like a buying opportunity for people who did not get in before the big pump yesterday and did not want to chase.
The technical bottom line is that this is a healthy pullback unless 325 gets taken out, which would starting bringing valid doubts back into the picture about whether yesterday was a bottom on any note. Below that level (325) could be considered a ‘stop loss’ on any new buying on the pullback. Again, this would be on a closing basis.
The fundamental bottom line is that the macro situation is starting to shape up positive for the precious metals and gold miners in particular if the ‘real’ price of gold rises. There is already an article on MarketWatch talking about no end to QE this year. Ha ha ha… surprised? The problem – and what I think has the makings of a very strong precious metals rally, possibly one day soon – is that the economy is showing signs of deceleration despite the open-ended QE pump.
The technicals are the technicals. The pullback is normal. Below 325 on HUI makes it uncomfortable. People need to know whether they are fundamentalists or traders/technicians. Because the macro backdrop seems to be slowly becoming favorable to the deeply over sold precious metals complex. So far it is ISM and Jobs on the economic contraction theme. We’ll gauge other events going forward and see if the narrative changes to economic deceleration and growing doubt about the Fed’s policies.