On Friday stocks went up, commodities went up… gold went up, with the weak ‘jobs’ report. All of this presumably because the Fed could decide to back off tapering QE because of the bad report.
This morning in pre-market stocks are down, some commodities are down… gold is down. All slightly, but the point is that they seem in line.
That is not contrary (counter cyclical) behavior, and an implication that could be drawn if this continues is that if the market decides that it wants to sell either of the ‘taper fears’ or ‘slowing economy’ stories, gold and silver could get dumped too.
Ultimately, gold should become a safe haven if and when things start to degenerate in other areas, but Friday and this morning could be hints that perceptions are not yet aligned with that view. In other words, if people were buying gold on Friday because they believed the Fed might take pause from the ‘jobs’ data and beef up QE, it would be a negative.
Use the necklines in gold and gold stocks – as shown in this week’s letter – as a critical parameter for support, which should be held to keep a short term positive view. If they do not hold, a scenario could develop where the precious metals take one last drop along with most everything else if/when the broad market goes bearish.
If that looks likely, I would sell/hedge with extreme decisiveness in service to what could be the ultimate buying opportunity on a decline, amidst some fear and worry about the markets and economy. A loss of gold’s neckline would target the low 1100’s if its bearish pattern is reactivated. This has been on radar for many weeks now.
Bottom Line
We have a ‘double bottom’ (to the June lows) stance in gold and silver. But each of these metals along with the HUI remain below their 50 day moving averages, which must be exceeded and held to change the daily trend to up. While some leading stocks have gotten above their 50’s, the precious metals complex generally has not.
Further, Friday and this morning are showing the PM’s in line with stock markets and commodities, not contrary to them. This is all very short term stuff and on a bigger picture the hints are that gold is in the process of bottoming vs. these cyclical items.
The 50 day averages must be exceeded and the daily trend must change (and hold for more than a day or two) to up before we can start to plan for the precious metals being out of the woods. So really, nothing has changed from that perspective.
The MA 50’s are key to the upside and the necklines are key to the downside.
