Yesterday FOMC laid a small, dovish egg on markets that needed something more. Sole abstainer James Bullard wanted .50 instead of the .25 that came. The problem being that the Fed is well behind the bond market in fighting the inflation it created. Again we note the 3 month T-bill yield, which almost always goes in lockstep with Fed policy. Well, not this time.
I believe the Fed sees caution signs (e.g. credit spreads, for one) that they are not talking about out ahead (instead using war and COVID lag as excuses) signaling a decelerating economy. The Fed is (in my opinion) a self-conscious entity that knows what it does (manufacturing inflationary cycles) and knows how they end (in a bust).
Whether it is inflation with the Fed behind the curve or economic deceleration and failing inflation, it would be good for gold. With that, let’s update the live futures chart, which has made its minimum pullback requirement.
That is part of the reason I added FNV and GLD yesterday. The other reason is the technicals, which can go lower on this projected pullback, but again have met the minimum expected pullback as gold slipped below 1920 and dinged 1895 yesterday.
First, let’s review the original projections from NFTRH 696 (online) made when the precious metals complex was still on the way up…
What’s more, I think there is a good chance that this is the start of the projected 2022 bull phase for gold and the miners. The first impulsive launch. However, when the acute phase of fear ends – and it will – the PMs will be quite vulnerable to correction, at least to test the parameters of the new bull phase. That could mean gold dropping back to the 1920 area (current: 1966), HUI to the 280-290 area (current: 304) and silver to the low-mid 25s (current: a lagging 25.80) if they do indeed ding the upside targets, near-term. Let’s remember that the seasonal goes negative around the current time frame.
We subsequently noted lower levels that were also possible. But the above were the minimum expectations.
The daily chart of gold sees the moving average trends starting to turn back up with the breakout from the Cup’s handle (Cup not shown on daily chart), overbought RSI relieved while MACD still carries potential for more eventual downside if this is going to be a more intense pullback. The volume on the pullback is light compared to that which drove gold up. That’s a positive.
All in all, the theme is the same. The correction has tested the 1920 ‘bull gateway’ and the bullish monthly chart Cup & Handle is active (long-term target: 3000+). Only when gold makes a new high will it eliminate the possibility of a deeper drop, potentially to test the moving averages. But as long as 1920 holds we should respect the fact that gold is in a bull market and thus the bias is up, not down.
Silver also registered its minimum downside of ‘low-mid 25s’ after never reaching the upside target of 30. It is also relieving overbought RSI. Unlike gold, silver’s main trend (SMA 200) is still down but grinding its way to a neutral status. If silver finds resistance – perhaps at the 25.80 area we’d watch for the convergence of the moving averages (25 +/-) to hold. As for the big picture, if/when silver takes out the #silversqueeze spike high at 30.35 we’ll be targeting 50.
HUI’s weekly chart shows the pullback having nearly ticked the upper end of the pullback target at 290. I’d prefer a moderately deeper drop to test the convergence of the weekly moving averages, lateral support at 280-290 and the (green) fan line breakout. But a pullback is a pullback and it has thus far dinged the bare minimum. Weekly RSI got too peppy and is on a normal pullback toward its EMA 20.
A more intense pullback would bring Huey to the 250-260 area. But it would have to lose a lot of good looking support (280-290) to get there.
The monthly chart again, for perspective. A deeper pullback would put HUI back into the wedge/bull flag, and that is not something we’d particularly want to see for the big picture bullish case. Look, that flag has brought enough angst for the gold bug “community”. No more is necessary. As already noted, the sector has already built the thrust for the next bull leg by being cast out into the desert for the last 1.5 years while the inflation trades drank, ate and were merry.
For more perspective, here is a chart with a few favored miners (SSRM, WDO.TO, BTG & AEM) and a developer (MAI.V). As you can see, the picture has remained bullish even after the sector pullback. Being the gold stock sector, the pullback could resume to deeper levels without hurting the big picture view. But that does not need to be the case because again, 1.5 years of angst among the bugs while the rest of the investment world partied on the Fed’s inflation.
These charts could take a little more downside, but the sector correction began in mid-2020 and ended this year. For 1.5 years bugs were trained not to expect positive things. That training will be valuable going forward and we should leave aside our views from the bear phase and replace them with bull views, which include buying pullbacks to support.
Next support levels are… SSRM: Mid-upper 18s to 19.50, WDO.TO: 13 +/-, MAI.V: .55 +/-, BTG: 4 +/- and AEM: 56.50 +/- in the possible event that a new pullback develops. Meanwhile, the entire sector remains a technical candidate to resume the bull move with ongoing caveats about the closing seasonal window* and CoT, the latter of which we’ll update this weekend.
* And all due caveats on that caveat. The seasonal is an average of 30yrs, which will not necessarily hold true in any given year.