NFTRH Update, HUI & Interest Rates

[edit]  Adding an alternative view of HUI

The good news is HUI remains on the plan for a potential Inverted Head & Shoulders bottom.

The bad news is HUI remains on the plan for a potential IH&S bottom.  Well really, the bad news is that interest rate spreads continue in a bearish direction for gold.  This has obviously stopped the overly optimistic gold community in its tracks and introduced some fear.  But the fundamentals must show positive signs otherwise all we are left with is a chart and hope.

hui

If this is an IH&S the making of the right side shoulder can take several weeks (of up and down action) to be somewhat symmetrical with the left side, so please try not to be hasty.

Still, we have a right side shoulder in the plan and a drop from a hype fueled 260 to a dispiriting 220 or lower (again, assuming the fundamentals stabilize) is not going to feel good, bottoming process or not.

I think that daily HUI may be in a ‘C’ leg down to a coming bounce point, but to put the above weekly chart into symmetry, we might anticipate that to be the end of ‘A’ down, into a ‘B’ up and a final ‘C’ down coming in a few weeks.

Again, referring to the above, the A-B-C was in preparation for a final leg down.  There is the potential that whatever shoulder making may be going on now would be in preparation for a significant rise.  But to see that a decent shoulder (built of a grind) should form and only time will provide that.  Also the fundamentals have to be more than what the average gold pom pom waver wants to see.

[edit] Alternative view of the above added.  It does not affect the analysis from a standpoint of an ultimate correction low, but it could compact the extended timing of the chart above.

hui.2

Specifically the interest rate backdrop must be right and as of 1:49 US Eastern, it is not right.  Here is the 30 year yield vs. the 5 year…

30.5

The ratio is hitting a new low today.  Now of course we talked about throw overs and downside spikes that could reverse.  But as it stands at this time this is a gold bearish chart.  Gold and its fundamentals can turn together on a dime, but at the least what we know is that there is no positive divergence in play.  For instance, if gold were declining vs. a bottoming and bouncing ratio spread.  Not happening at this time.

30.2

The 30 year vs. 2 year has broken a trend line.  We went over how it was negatively diverging gold.  Now gold is following.  Will it find support?  We’d hope so.  But we are not using hope folks.  This is bearish right now.

For a further visual here is the long term T bond fund TLT looking relatively bullish…

tlt

While the 3-7 year T bond fund looks bearish…

iei

That’s not good if you’re a gold bug.

This update hopes to provide some perspective to your decision making.  The correction was expected.  One would think there could be a bounce soon.  But the chart of HUI says be patient about chasing it.  Or at least realize it could be subject to new lows.

This may not be a quick flash correction but rather, something that extends a couple or few weeks if the IH&S is/was in the plan as we have been theorizing for months now.  And that is assuming this is only a correction within a bottoming process, which we will not do until/unless some fundamental underpinnings start coming back in line.

I realize that USD is down hard today and that is a gold bug fundamental underpinning.  I’ll guarantee you they are cheering for a lower dollar.  But we should continue to focus more on the interest rate structures associated with the buck, than the currency itself.

Balance and perspective are as usual, needed.

Side note:  Interestingly, China, Emerging and some commodities are positive today, which makes sense on a weak dollar.  The US stock market is weak.  There is a lot going on and we need to gradually make sense of it.  I don’t think there is any rush.  We’ll let the market show its hand.  Right now, one thing it is not saying – despite the weak dollar – is that inflation concerns are at all elevated.  TIP-TLT ratio…

tip.tlt

Bottom Line

The whole bearish thing could reverse tomorrow having given inflationists and gold bugs a start, but not really affecting their psyches too badly.  Truly, this could be the correction and a big buying opportunity.  But for me personally to even think about talking seriously about that, I need to see interest rates change their current course.  At that point I’d seriously look at charts.  But as of now and considering the rate backdrop, at the very least we should expect a more protracted corrective process.  At the least.

People should have been and should be managing risk as they deem appropriate.  I personally think it is appropriate and I am going to continue doing it until I see down side technical objectives marry up with the interest rate fundamentals and also sentiment, which one would think is coming in line nicely now.