NFTRH 486 Excerpt: Precious Metals

Written over the weekend, when the gold sector was down in the dumps and after I had been buying miners on Thursday and especially Friday, per the NFTRH Trade Log

Precious Metals

A public article covers some macro fundamental topics and big picture technicals. It is old territory for us but may be worth checking out. The fates of the stock market and the gold sector usually go hand in hand.

US Stock Market, Precious Metals and the Macro Backdrop

You may have noticed that I did more buying on Friday (per the Trade Log) and that is because I am getting that bullish feeling I get when gold bugs give up the ship. In this case, I assume many of the sellers were inflationist gold bugs and that is exactly the scenario we’d want to see.

From Cotbase.com, the net positioning for silver (top) is constructive and for gold it is less so. A couple of points here. First, there was some pretty good downside in the prices of both silver and gold after the data were logged on Tuesday. The CoTs have likely improved from what we have available here. Also, the Small Specs were not bullish on gold as of Tuesday and that is a positive.

Silver Commitments of Traders:

silver cot

Gold Commitments of Traders:

gold cot

Let’s take a look at the weekly trends in gold vs. cyclical and risk ‘on’ items. We know that the dailies jumped last week but the weeklies give us the major trends. Gold made an interesting jump vs. CRB, Copper and Palladium. The rise in Gold/Silver finally brought pain across the macro, Gold/Oil jumped but has a way to go before it gets interesting.

gold vs. commodities

Gold vs. stock markets is making moves across the board. Trends have not yet changed although in Europe and Canada that may be about to happen. Let’s see what any market relief bouncing (if applicable) may bring in the coming days and weeks. For now, this is simply a view of players all over the world rushing for the exit. What we need to figure out is whether this is a knee jerk or a macro change.

gold vs. stocks

Gold vs. Currency indexes is on mixed signals as it eases toward support within a year-long uptrend vs. USD, eases toward support within a 1.5 year long downtrend vs. Euro, consolidates a big up move vs. BP, probes support vs. Yen and looks stable above support vs. both the Canada and Australia dollars.

gold vs. currencies

Here is another way of looking at gold vs. global currencies. UDN is in essence roughly an inverse-USD fund made up of global currencies. Measuring gold vs. UDN gives an idea as to whether gold is in a real, global bull market as opposed to just a USD-centric bull market. It has actually been up trending since 2013 but down trending within that uptrend since 2016.

If gold gets above the center channel resistance line its intermediate bear trend could be over. Pinned under it however, the prospect of a lower channel line hit remains open.

gold vs. udn

Let’s take a look at HUI weekly, featuring our old friend the EMA 55, which was the bear market ball and chain. Huey has been grinding the EMA 55 for well over a year now within a consolidation of the big up spike in 2016. We have noted 170 as support.

hui

Now, what comes next? I believe the gold sector has been conspicuous for its refusal to go back to the hell it came from as the massive risk ‘on’ party hit its extremes. It sounds counterintuitive to some, but you do not want the gold sector running with the risk ‘on’ bulls so to me, it was good to see the sector sit there like dead wood during the market’s exciting reversal on Friday.

There could still be some grind left but I for one have bullish feelings cropping up. The trigger would probably be silver finally assuming leadership over gold. It is no coincidence that the stock market’s mini implosion and continued gold sector pressure came with a gap up in the Gold/Silver ratio (GSR). If the ratio settles down with a little broad market relief, maybe the gold sector will bottom and participate.

gold silver ratio

Regardless, the GSR rises along with gold sector fundamentals even as it often brings pain to the sector. Look no further than gold/stocks and gold/commodities ratios. These feed the gold mining sector’s macro fundamentals and its sector-specific fundamentals (as gold rises vs. cost inputs).

I am going to spare the gold stock charts (although a few weeklies will be in the NFTRH+ Charts & Notes segment below) this week because throw a dart at your favorite miner for fundamental reasons, and it probably got clobbered last week. I believe we are at or approaching a sector buying opportunity and this time it is for better reasons than the mid-December ‘buy’, which was for seasonal and sentiment (and CoT) reasons as the sector rallied as an “also ran” with the general inflation trade.

I currently hold (in alphabetical order) [stock symbols omitted for the public version of the article] and don’t know that I have a need to venture too far into new areas. [symbol omitted] maybe, possibly [symbols omitted]. But for now I want to manage a would-be low and would be happy to simply add to current holdings if the sector looks prospective.

The bottom line however, is that the stock market cracked and if the crack is a prelude to future additional downside, it is time to pay close attention to the gold sector.

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