NFTRH Update 7.23.13, Precious Metals

Please refer to this morning’s public blog post Precious Metals Must Make a Stronger Statement Still.

The best thing happening in the precious metals in my opinion is the HUI’s leadership over the metals and the next best thing is that the ‘real’ price made a lunge upward yesterday.

au.cci

The Gold-CCI (commodity) ratio broke upward to the top of a downtrend channel after a positive MACD divergence and up trigger.  RSI popped above 50.  All good.

Now we need to see the noted green shaded area hold as support.  We need to then see the channel broken and the 50 day averages put in the rear view mirror.  That begins to firm the case that what is going on in the precious metals is something fundamentally important and sustainable.

To review, a rally in the gold sector, if it comes along with rising commodities and inflation concerns would be a ‘sell’.  It is no more complicated than looking at gold’s ratio to oil and projecting additional cost increases for already struggling mining operations.  The gold miners need a phase of economic contraction that boosts gold in relation to commodities, and the stock market for that matter.

So yesterday was nice.  The HUI-Gold ratio is constructive and we should use discipline in reading our road maps every step of the way to make sure the right ducks are in the right rows.  I may be wrong in this notion, but I am not going to tolerate gold bugs doing anything more than light selling today or else I will trim some profits while awaiting the signals and conditions noted in this update and this morning’s public post.

But to wrap up, the signs look good so far for those who are looking to slowly rebuild a bullish orientation on the sector.

[edit]  Question from a subscriber:  “Maybe it is  a matter of style, but here is the question.  If there is  normal pullback today to “support” lines or trend lines — in the ratios you are discussing, do you consider adding more of your chosen stocks at that time ( given that their individual charts look okay), and then sell if if falls below the lines ( or let it run if it turns back up).”

Answer from a lowly market participant:  “That is exactly the thing.  Each of us has different needs.  My need is not to day trade but also not to incorporate a buying regime into any false bottom.

The best possible thing would be (IMO) to be buying the pullbacks in a new up trend.  Right now the market is only making the necessary steps to get to that phase.  What I tried to do this morning is to lay the plan toward an easier path when trends have been established and a ‘buy the pullbacks’ regimen would be sensible.  Right now I don’t plan to buy pullbacks because there is no trend yet.

I do like the signals that certain individual quality stocks have made though.  If they are leaders and they are above the 50 day averages, then there is a good shot at a coming trend.

Hope this helps.  I’ll put this on this morning’s update as an edit.”

Also please note that I am very serious about the macro fundamentals.  Beyond the technical talk above, it is the fundamentals as indicated by gold’s REAL price (gold-cci, gold-oil, gold-stock market, etc.) that are the main driver to any bullish view for the NFTRH analysis.  Otherwise, any rally is in my opinion, just that.  A bear market rally.

Sometimes I feel a little apologetic to have to be so strict about this because I can feel how badly some people would like for the precious metals to regain their former glory.  But we are still a long way from Oz and I find this kind of ‘checks and balances’ discipline necessary.