With HUI at target and markets entering the late Q3 to Q4 time target, we have raised awareness in the last two updates about what we can look for as signs that the fun may be ending in gold stocks. Momentum (BPGDM) and leadership (HUI/Gold ratio) are intact and as long as they are bullish, not giving a warning signal. But they could flip in a matter of hours or a day.
But there are a couple of views that show an upside blow out could happen first.
Although it was mentioned in written form in one or both of the updates, caveats to an imminent bearish view are the bullish state of nominal gold and the “reset” state of the Gold/SPX ratio ratio.
Here is the daily chart of nominal gold. If it were to do what an Ascending Triangle is “supposed” to do, and continue, the gold price would take a nice leg upward.
What’s more, the Gold/SPX ratio (see today’s public article for status on several other gold ratios) looks like it has bled out the vast majority of what it was supposed to bleed out of its formerly excessive upside theatrics.
Bottom Line
While HUI’s hit of 500 has started my clock ticking on looking for an end to the rally, we do not yet see signs of it internally. What’s more, if gold breaks to the upside out of its Ascending Triangle and its ratio to SPX starts to bull, there could be some real upside theatrics yet.
It is hard to imagine much of a correction happening while Gold/SPX is in such a tame state. Given the momo in play for gold stocks, it is not hard to imagine the phase ending in an upside blowoff. Again, that assumes gold bottoms around here vs. SPX and nominal gold breaks the triangle upward.
I tucked a little volatility protection in the portfolios (UVXY) and added SBSW on its resumed pullback. But other than that I am sitting back, taking it day to day, week to week, waiting for signals.
