NFTRH; Year-End Market Update (Gold)

First of all I want to wish you a happy new year.  I for one am looking forward.  Speaking personally, the market has been pretty difficult to deal with.  I had a good year going (insofar as I participated, while keeping high cash levels) until a combination of some bad decisions, all in one day (including a decision to hold a speculative biotech stock, blessedly not mentioned in NFTRH, that got cut in half) and the up and down spikes in volatility and waning market breadth shelved my trading, as noted several weeks ago.  I end the year very flat, just like the stock market itself.

Yields & Gold

So the new year is upon us and I think changes are coming in 2016.  But we must realize that trends have not changed.  One major trend that is still in force is in yield relationships.  While I hesitate to put too much credence into market action during the 2 week (or so) “Santa” period, we should realize that yields are still implying two things…

  1. Confidence in the Federal Reserve as it pursues its stated goal of withdrawing abnormal accommodation.
  2. An adversarial backdrop toward gold as short-term yields continue to rise faster than long-term yields.

Here is the 10yr vs. 2yr done two ways, our conservative way, which has kept a more bearish view for gold intact, and the way others calculate the yield curve, which looks more constructive to be bottoming and thus, constructive for gold.

10 year yeild, 2 year yield

Here is the nominal view.  While the 10 year looks constructive to turn up, the 2 year is spiking.  This is gold-negative as it stands now.

10 year yield and 2 year yield

Here are a couple more views of confidence in the Fed and current policy, but not in gold (as of November).  Gold has failed to protect against CPI since 2011.  What is actually happening is that gold is correcting its big upward swing vs. CPI, but work with me here.  We are talking about market participants’ perceptions, and post-2011 they are negative.

gold vs. cpi

The 2 year yield meanwhile, is rising nicely vs. CPI, post-2011.  The bond market is handling any coming inflation pressure for now.

2 year yield and cpi

I have gone through some charts this morning and what I see is gold looking bearish vs. the Yen and Euro while in an ongoing bear market vs. USD.  In Europe they are trying to leverage the currency toward asset market growth and gold is not providing a ‘stop!’ signal to this policy.  This is much like the US experience during Op/Twist & QE 3, and is a reason that I think Europe can be an area of out-performance in 2016.

The bottom line on gold and the gold sector is that while there are positive signs for the sector’s fundamentals and a (1999-2001 analog) time frame for gold stocks to begin out performing the stock market in the next several months, macro fundamentals have not turned yet, and macro fundamentals are where the mainstream’s perceptions will be formed.

Gold, silver and miners remain in technical bear markets whether or not the bounce scenario remains intact.  While I am still holding a few small gold stocks that have generally out performed, this view of the HUI is as lame as ever.  It is either going to hold the noted support zone and grind out a bottom or it is going to fail.

hui daily chart

A failure brings on the 70’s, per this chart we have been reviewing of late…

hui monthly chart, log scale

As noted, I’d almost prefer this scenario because it could put an ! on the bear market and finally provide a washout signal.  Given the recent over bearish sentiment backdrop and positive CoT, we can continue to watch for daily HUI to grind out a bottom here.  But the monthly above is still very viable.  Further, big picture views of HUI-Gold ratio and GDM-SPX have not made positive signals.  As noted for years now, even if a bottom is being made, you are not going to miss much if you miss the exact bottom of a real bull turn.  The recovery, when it comes, will provide plenty of time to get on board.

This was going to be a comprehensive market update, but I got hung up on gold.  So considering our last detailed update was on the US stock market, I’ll launch this one on its own as a gold sector update and try to get a quick US and global stock update going later.