Tune Out the Noise

Today as I watch a former holding (TAS) plummet after being promoted last week on the heels of watching the gold ‘community’ get Ukrained and FOMCed in a double barreled assault, I am reminded just how dangerous herding behavior has become in the social networking phase of the information age, where every genius has got a pitch and a play, every news outlet has got ready made reasoning and the whole cacophonous mess needs an ever more finely tuned Bullshit Detector. 

Hence last week’s opening NFTRH segment.  And by the way, I do not view Dan Norcini as any sort of a hype monger.  Quite the contrary.  From what I have seen he is a well grounded and honest person.

Tune Out the Noise, Follow Technicals & Macro Fundamentals

Mail from a subscriber highlighting Dan Norcini’s view of the precious metals rally being little more than Ukraine-inspired hedge fund short-covering is but one of many inputs I have either received or seen on the internet that for my purposes at least, will be tuned down.  I don’t doubt that Mr. Norcini has good experience as a professional trader, but I do question the importance he seems to assign to what the “hedge fund community” is doing at any given time.

Other inputs received or observed range from the utterly ridiculous ‘China copper demand is declining, so a decline in China gold demand will push gold prices down’ to a wide range of bull and bear rationalizations that vary from unlikely to plausible.  They have one thing in common; they serve to amp up emotions.

Consider this post-2009 litany:  Flash Crash → QE2 → Euro Crisis → Greek Austerity Vote → Cyprus → Operation Twist → Fiscal Cliff → QE3 → Taper → Ukraine → [today we can add in the Yellen ‘you know, like 6 months after taper ends, sort of…’ rate hike hysteria]

There is always something to obsess about or over intellectualize in the markets, especially in the gold market.  I ask you for the sake of your own mental and financial health to realize that the media are in business to intensively shove these things down our throats, draw conclusions and influence our thinking.

There is a reason we follow and respect technical and fundamental milestones.

That reason is to maintain discipline and a clear focus.  Last year we had to do just that to protect against bearish outcomes in the precious metals (despite heavy China buying and physical demand that the gold ‘community’ used to rationalize its bullishness most of the way down) and this year, with a bullish view continuing to take shape, we should not let the noise of China’s demand drop or any other inflammatory thing – like what the hedgies are doing on Ukraine hysteria – influence us to undue proportions.

There are only technicals and macro fundamentals, which as you know are often derived from the technical status of inter-market ratios analyzed in NFTRH.  These ratios do not intellectualize or promote agenda.  They simply are what they are.  Last week we noted that some of them had begun to degrade.  This week?  Some are back on track.  An important question in the short-term is to what degree these signals are influenced by the Ukraine hype that, like it or not, will have some influence during its flashpoint phase.

The precious metals sector’s technicals never degraded and that includes silver, which has simply been making a test of support that is normal and expected.  With the headlines like the Crimea vote (whether or not to become part of Russia) and its aftermath (Western response) this weekend sure to affect markets, we’ll realize that in the very short-term anything can happen.  Volatility, especially in a time of hyperkinetic media, is a given.  So this year we will need 4 things, as we did last year…

  • An operational B/S Detector
  • An ongoing technical view
  • An ongoing macro fundamental view
  • A backup B/S Detector


Bottom Line

Ukraine is a key resource region and is playing into varying degrees of speculation in Agriculture, Uranium, NatGas and yes, Gold.  Like the litany of inflammatory events listed above, its influence on financial markets will one day be a memory.

It is likely that the commodity speculation is going to be reversed when hedge funds have fully milked the hysteria for all it is worth.  It is an open question as to how much of this speculation was built into gold and by extension, the miners.

China’s economic deceleration is a worthy fundamental consideration for gold.  Ukraine/Crimea is not.  Certain commodities have obviously been influenced by Ukraine (Agriculture, NatGas and possibly Uranium) and others by China (industrial metals).

Ukraine is not a fundamental consideration for gold.  As the hype unwinds, the ‘fear premium’, to whatever extent that this hype is in the gold market, will be addressed.

[Consider it fully addressed; gold is on its own now with its macro fundamentals and technicals to guide]