NFTRH Update: Precious Metals; More Clues

Earlier in the week we noted the hard down and reversal in the precious metals as an indication to keep an interested eye on.  We also noted that we’d want to see Thursday and Friday follow-on, preferably on volume.  Yesterday added to the bull case as follows:

  1. The ISM data – and its implications of continued Fed Tapering – came in strong.  Yet the precious metals did not skip a beat afterward and the stock market continued in its weakness.
  2. Volumes were generally good.
  3. Very notably, gold went higher with the strong USD that resulted from the solid ISM and its ‘taper’ implications.  Ultimately we are building a case that gold can do well in a QE tapering environment because it will pressure long term yields to rise IN RELATION to short term yields, which is important for gold.
  4. Crude oil predictably declined hard on the strong USD.  Thus the ratio of gold to oil made a hard impulse higher and may have double bottomed.  This ratio is important fundamentally for the gold mining industry.

gold.wtic

The chart is not ‘fixed’ yet, but it was a notable start.

Gold also rose against most commodities and stock markets.  Of course this was just Day 1 of a new year that I think is going bring changes that will reward those of us who went through the aggravation of managing risk and staying intact while policy makers the world over promoted a massive ‘RISK ON’ atmosphere.

It will surely not be as easy as Day 1 implied.  It is likely that stock market profit takers were waiting en masse for sales into the 2014 tax year and gold buyers were doing the same in reverse, after having sold the precious metals complex during tax loss season.

But this does not change the fact that gold went up with a strong USD while regular commodities went down, while yet another strong economic indicator came in.

Now it is time to start seeing the precious metals break and hold above the 50 day moving averages.  For gold that is above 1250, silver around 20.50 and HUI 208 to 213.

If gold bug inflationists are still talking about about economic growth and a rising price of oil being good for gold because it will unleash inflation fears, we would remain in high caution mode.  That is not what happened yesterday.  The USD was strong, the ISM was strong and gold and silver were strong.  Most everything else was weak.

We will watch Treasury yield spreads closely because it is not in the ‘yields are rising’ or ‘yields are falling’ noise that gold will be guided but rather, in the relationships of those yields.  Gold bulls would want to see short term yields decline in relation to long term yields.  Period.

NFTRH 272 will take the form of a ‘need to know’ summary on Sunday due to services for my father on Saturday.  We will cover the important items clearly and concisely.