NFTRH Update, Post FOMC: Precious Metals & Stock Market

Yellen Speaks

I had to go out for the rest of the day right after the FOMC release.  I came back to a fairly unsurprising mess in the precious metals, and a negative stock market. It turns out I missed the market’s little fit as Janet Yellen hinted that the Fed might raise the Funds rate a little sooner and a little more steeply than the market had anticipated.  A little.

Well let’s hear it for the savers of America and the boon it will mean for their beaten to a pulp savings accounts!  With everyone knowing that QE will be tapered out, ZIRP is now on the table for discussion.  Where once we had Operation Twist to force short term yields upward vs. long term yields, we now have the Fed’s talk about ending ZIRP somewhere out there in 2015 to do the trick.

The stock market sagged and the gold sector took a bit of a fit.

After reviewing some charts I thought I’d put them up here along with some thoughts associated with each.

Precious Metals

30.5.30.2

The spreads between the 30 year yield and the 5 and 2 year got hammered today as short term yields rammed higher on Yellen.  These spreads have been degrading lately as we have been noting, but today they got rammed down to a point of a would-be triple bottom.  If they do not bottom, neither will a former fundamental underpinning for gold.  This indicates little economic stress what so ever.

Here is the 30/2 with gold from NFTRH 282…

30.2.au

It turns out that the spread was negatively diverging the gold price after all.

au.spx

Gold vs. the stock market (SPX) is still fine.  If the green line holds, this week was just a jolt.  If it breaks down it will put a lot of pressure on the case for gold and the miners in the short term.

gold.cci

Gold vs. commodities got pushed back below the 50 day averages.  This indicator says that it’s not time for economic contraction yet.  Gold-Palladium is similar.

au.wtic.png

Gold vs. oil is dropping to test support at the moving averages.  This indicator is important to gold mining.

silver

Silver got closer to the test of support we have awaited.

sgr

Silver-Gold ratio held support and that is a positive.

gold

Gold (per chart from NFTRH 282) fell below important support (to the short term case).  If it does not reclaim this area quickly, the next stop is the convergence of moving averages around 1300.  Below that is ‘must hold’ visual support around 1270.

hgr

The HUI-Gold ratio (HGR) is back to the rim of the bowl that we noted in NFTRH 282.  Okay fine, it is still bullish.  Just don’t break my pretty bowl HGR.

Bottom Line Thoughts on Precious Metals

You know that you are not going to get gold bug dogma here.  We have been expecting a correction (to a theoretical right side shoulder on a GDX/HUI Inverted H&S) and speaking personally, I can deal with draw downs as long as things stay normal.  As things stand now, it’s all normal.

But the prospects for the fundamentals need to stay intact or else the sector would be an ‘avoid’ until the fundamentals start in the right direction again.  In other words, my method is to use technicals and fundamentals, not to just look at charts and imagine what wonderful things could be.  I want both to be in some form of cohesion.

A break to new lows by the yield spreads, a further drop in gold-CCI and gold-WTIC are things I do not want to see as a gold bull.  They ran down on Yellen’s jawbone and often jawbones only move markets for a day or two. But we will soon know how it shakes out.

Obviously, gold vs. stock market needs to hold up as well.  As things stand now everything is as expected, but the yield spread charts in particular are to limit points and their message of the last few days was gold unfriendly (as was the market’s interpretation of Ms. Yellen).  They need to turn back up or we will have a warning.

I have no problem remaining steadfast as long as the expected downside parameters hold (equiv. of roughly HUI 230 as we noted in NFTRH 282) and the fundamental picture does not fall apart.  As it is the fundamental picture never really got going.

What I want is for HUI 230 to hold and for the fundamental indicators to hold.  Simple.  As I write, one tough week of Ukraine hangover and FOMC has not broken the precious metals.  Indeed, silver is still on its ‘normal’ technical test of support.  As long as silver and the above indicators hold up, all’s fine.  It’s a correction.  If these indicators fail, we’ll have a warning that it is not time yet for the precious metals.

Stock Market

spx

S&P 500 is fine above the 50 day moving averages.

sox

The Semiconductor index is safely above the 10 year breakout point.

Things could change in a heartbeat, but until something technical happens, that is wishful thinking for bears.  There are no evident technical breakdowns at the moment.

Before I write an entire report, I’ll sign off for the night and try to go easy on the updating for the remainder of the week.  We have our ducks lined up in a row and now we just need to see if they stay that way.