alice

NFTRH; Technical & Fundamental Parameters to a Real Gold, Silver & Miner Buy (priority: high)

Technical

We have gone on about the bad fundamentals for too long now. With the sector washing out it would be best for a buyer to see the US stock market (AKA the Good Ship Lollypop) join global markets and some commodities in shifting bearish. Let’s begin with the technicals and then review the macro fundamental backdrop.

Gold (weekly) tapped the lower support zone, bounced and is now inside the 1st resistance zone. With the Gold/Silver ratio spiking gold could make a significantly higher low to 2015 while silver does not. I have my doubts whether gold will even crash the 1160 support area, especially if risk goes ‘off’ on the macro (including the US).

This monthly chart of gold shows the price creeping down the top of the massive wedge it broke out of last year. We stated that the resistance in the mid/upper 1300s was not going to be given up easily because it is the gateway to a new bull market. And so it hasn’t. But macro willing, gold is still in the game here.

Silver (weekly) broke 2016 support yesterday and now the 2015 low of 13.62 is in play. Talk about a re-test, this one is unforgiving to knife catchers who were early. But we are now in very interesting territory for buyers with the metal getting very oversold.

HUI (daily) shows the bear flag I thought I saw (orange) a couple weeks ago before it bounced upward out of it and then made a bigger bear flag. Not cool, Huey. It’s now dropping to a new low after resetting RSI from deeply oversold.

HUI weekly has not [edit: now] firmly bonked the 2015 support area. More significant support is around 120 (theoretically 100-120) at the 2016 bottom re-test zone.

Fundamental

The bad fundamentals are symbolized by the Good Ship Lollypop and its happy economic story. The US has kept risk ‘on’ while much of the world has begun to slide. But this is a picture of risk to US stock bulls in my opinion, not to gold. Risk can take its time to play out as we know. But this ratio (monthly) has journeyed a long way since 2011.

Flipping it over and dialing in to a daily view we see gold elevating lately vs. a few global markets despite nominal gold’s poor performance. When we start seeing gold breaking upward vs. all major stock markets we will have a very good fundamental signal. Is that starting in Europe now? Could be.

The above is what I consider a macro fundamental, where investors’ perceptions of macro risk come into play. Gold vs. cyclical Commodities is that as well but is also a gold stock sector fundamental, as energy and materials play into gold mining costs.

These charts (monthly) will need to establish new up trends and Gold/Oil especially, needs to get a move on from what is still a higher low.

Dialing in to a daily view Au/CRB has not yet budged under pains of Au/Oil. Also, the very recent decline in Au/PALL is disappointing for a would-be bearish risk ‘off’ player. But Au/IM and Au/Ag are both indicating risk ‘off’, so let’s let this develop and see if we can’t get a good bout of risk ‘off’ going in the markets.

Gold vs. Currencies has not done anything yet. This will need to change in order to firm up the fundamentals.

Here is an old I chart I did a year or two ago showing gold vs. the basket of currencies that make up the US bearish fund, UDN. I have long been spooked by the possibility that gold might drop to the lower channel line after failing to get above the mid-point of the channel. And so now it has dinged the lower channel line. Whether it will break down or not I can’t say. But what I can say is that what had concerned me about this chart is no longer applicable. Gold is a candidate to bounce vs. global currencies.

Other Considerations

There are other fundamentals like the flattening yield curve trend that are negative, but the 10yr-2yr curve has bounced of late. You can see that a bounce would need to turn into a spike as in February in order to signal stress in US markets.

I am not going to pretend to know all the dynamics in play but the 30yr-5yr is potentially doing that [edit: bottoming] now. And it was not good for the macro the last time it spiked, in February (the thing in May was quickly reversed and an outlier).

Bottom Line

Much of the rest of the world is relatively distressed. If the Good Ship Lollypop hits those waves as well the counter-cyclical gold sector will start to be in business from a fundamental perspective.

If the above comes to be, the current washout is indicated to be a significant buying opportunity. I for one cannot pick bottoms, but I can start to pick off favored miners as they drop. I need growing conviction about the macro backdrop going counter-cyclical for that. I need strength. So let’s see if another negative start for the US this morning actually turns into something this time.

Miners I am watching to add to very light current positioning: KL, AXU, PVG, BTG, AAU, AEM, SAND, RGLD, NEM, GG, PAAS, WPM.