The setup is a classic one, and it is not a positive one. What I mean is the geopolitical setup, where Syria gasses its people, the US lobs Tomahawks into Syria (symbolically provoking Russia), Christian churches attacked in Egypt and as always… North Korea.
This is not a call to be bearish on gold, and each time I’ve tried taking a precious metals short lately, it has not worked out (because timing is everything). Indeed, gold has made the key ‘higher high’ and regardless of what drove it in the short-term, that is a positive toward establishing a coming uptrend.
Silver remains a negative divergence to this however, as it has not gotten above the February high.
And the implied target of HUI’s break above the SMA 50 is the SMA 200, currently at 216.
What I would like to see is these last 2 items go on to pop a ‘higher high’ to February before the next correction comes, because that would give the sector – instead of just gold – a bull trend. But as of now, they diverge.
Here is the thing; I want to be bullish on the gold sector because I want the stock market to adhere to my view of normalcy, which means addressing its over valuation. But that is a mug’s game (insert here the wise old saying about irrational markets remaining so longer than you can fight them). The best case for gold continues to involve a crack in the stock market.
But here’s the rub; if gold would be vulnerable to peace breaking out (i.e. a lull in global strife) would not the great stock bull consider using such a thing as a relief valve? To the extent that the recent bullishness in the precious metals have been related to violence and war-like activity, they are vulnerable and I’d not be at all sure that the stock market would not get the opposite play, on relief. The stock market clings to its ‘consolidation’ (as opposed to significant correction) theme and we will resolve this soon enough.
As things stand, gold has made its higher high to February; a positive (and the metals are a bit positive in this morning’s pre-market). What’s more, if silver and the miners do so as well, we’d have a firm signal to buy the next decline. Should the stock market crack for real, so much the better. But again, geopolitics are heavily involved and if they become a non-issue, recent short-term trends could be reversed.
Just thinking aloud about the current setup and we’ll shape these opinions as things develop. But even if the precious metals complex makes new highs, there will be an ensuing decline. The positive would be that that decline would be indicated as a buying opportunity for an extended up phase in the months ahead. Within this, the stock market should crack in the coming weeks or months or else the view remains that the gold sector is ‘nothing special’, at best.