Stock Market Let's keep it simple. At the depths of the recent hysterical downside we noted that the forces pushing the market down were probably unsustainable largely due to hype…
A snapshot on gold... We noted the May/June low as the key resistance point for gold and today it is popping above that point, with a 50+ (but not over…
Well, here came the short covering rally in the precious metals. By calling it that I don’t mean that it cannot turn into something more, but today was most assuredly driven by short covering as the US dollar unwound some of its speculative sponsorship. One can assume that large speculators took it on the chin on both ends, in the USD and in gold/silver as the Commercial traders had been aligned increasingly bearish and bullish, respectively.
Outside of the sound practice that is physical gold ownership in a time of monetary gamesmanship, the precious metals sector is all about speculation, at least according to 9 out of 10 chart jockeys and momentum junkies micro managing every short-term twist and turn.
Indeed, NFTRH manages gold, silver and the gold stocks on down to the short-term views as well, but that is only because the long-term views have stated that this is a time to be paying attention. Do we pay attention because we have waited so long to promote our orthodoxy and finally be right as gold bugs? No. We pay attention when a chart tells us to pay attention.
While we manage the shorter-term views (both macro fundamental and technical) rigorously in the weekly report and interim updates, here I’d like to dial out to the big monthly picture with 3 large (click to expand as needed) charts of HUI, Gold and Silver to see their stories, which are the reasons we are managing shorter-term views.
HUI Gold Bugs Index
First HUI monthly reviews the warnings to the analysis from 2012 and 2013. They were very clear and should have kept people out of much of harm’s way with respect to gold stock speculation.
[ed: Excerpted from NFTRH 301’s opening segment. Those looking for paint by numbers directions and casino game instructions (talking to readers at a certain site that may or may not re-publish this article) feel free to just skip the article. You will not get what you are looking for. The balance of NFTRH 301 did the nuts and bolts technical work on the relevant US and global markets, precious metals, currencies, etc.]
[edit 2] Based on reader feedback from another site, it appears I do not understand inflation, nor that gold’s purchasing power is superior to that of the USD over the long term. What I take from this is that if you post anything positive (like USD’s ‘price’ potential) about the buck and/or negative (like gold’s price vulnerabilities) about gold certain handbook carrying people in the gold ‘community’ are going to lash out first, and read/consider second. In other words SSDD.
Take a look around the gold bull landscape and tell me how many of them are featuring a chart like this, showing the US dollar in a bullish short-term stance (to go with the weekly bullish stance we have noted for so long in the ‘Currencies’ segment).
This is not to say that the US dollar has real value. How can it when it is hopelessly dragged down by a national debt-for-growth obsession. But as with gold, value is one thing and price is quite another. It is just that one (USD) receives a price bid due to a ‘nowhere else to hide’ sort of mentality by the majority when asset market liquidity becomes constrained and the other (Gold) receives a more solid value bid, over time.
Finally, we have seen the obvious (what most people will now take note of) kickoff to a short-term correction in the precious metals. Depending on the fundamental picture, we can plan on taking advantage of a buying opportunity as we have been noting over last couple of weeks.
We have not checked in on this motley crew at the public site in a long time (NFTRH keeps a running tab each week). Here are the monthly views of the basket cases we call major currencies.
Uncle Buck and his reserve status were leveraged to the hilt by “The Hero” and now his successor is trying to gently talk the Fed out of its policy stance over time. In other words, tightening is going to come one way or another and Janet Yellen is trying to go the orderly route. When this process becomes disorderly, the USD is likely to benefit from the liquidations elsewhere in the asset world.
Technically, USD is in a long basing pattern. There are those who think it is basing before a renewed decline, reading a Symmetrical Triangle (continuation) pattern into poor old Unc. I think the odds are it is bottoming over the post-2008 years when inflation – try as they might to have promoted it – simply has not taken root *. Leaning bullish, watch support and resistance.
Gold got blown up in 2 days with respect to the short-term rally. Watch for gold to bottom before silver as we likely transition into a phase of gold leadership over silver. Key support is from the 1300 down to 1270.
Gold stocks are in the resistance target zone, so understand that negative reactions are becoming more likely. But I want to make a point that unlike the hype surrounding Ukraine and Iraq (i.e. geopolitical problems) that we discount as a fundamental underpinning for the gold sector, the headlines now coming from Europe and in particular Portugal are an actual fundamental underpinning because they speak directly to what is wrong with the debt leveraged financial system and our reasons for owning gold and/or the miners.
This article at Hard Assets Investor talks about Jeff Gunlach’s bullish gold call for 2014 and uses Dylan Grice’s 2012 call as an example of how the end of the world (i.e. gold’s safe haven value) can be put on hold indefinitely.
Is Jeff Gundlach’s Bullish Gold Call Too Early?
So is Gundlach wrong today? Grice wasn’t necessarily wrong in 2012. What he called “the largest credit inflation in financial history, a credit hyperinflation” has instead rolled on…taking asset prices higher and crushing interest rates. But it hasn’t, as yet, hit the value of money itself.
Nor will it hit the value of money, especially the US dollar, until all confidence is lost in the system. We are about a million miles away from that condition right now (see second chart below). Confidence will be lost first in the assets that are benefiting from the inflation – like stocks, so strategically at the heart of the wealth effect that policy makers are trying to stimulate – and then in policy makers themselves. Then we’d have a big bull market in gold for all to see.
The following is one of a wide range of analytical topics covered in NFTRH 293’s 35 pages this week, much of which is straight ahead technical analysis. But the T Bond market is usually central to an overall macro view at any given time. This segment is not meant to provide actionable direction (other than perhaps to prepare for a potential rise in T bonds yields), it is meant to dig into the mechanics beneath the financial markets in an effort to have people consider that there is much more going on with markets than simple nominal TA or conventional fundamental analysis (PE ratios, growth metrics, reported economic data, etc.) can account for.
US Treasury Bonds
Yields on long-term Treasuries have continued to decline in line with our view that was contrary the ‘Great Rotation’ (out of bonds) hype. The [30-year] especially is now close to support and the next play seems like it could be rising yields and declining T bonds.
The 30-year ‘Continuum’ view above makes the simple case that players had to be put offside believing in the ‘Great Rotation’ at 4% yields. The nearly half-year decline since then has now satisfied the chart as yields have come to our 3.1% to 3.2% target range, where there is support.
The latest data from Bloomberg shows yields declining in gold’s favor today as the short end (2’s & 5’s) drop in yield faster than the long end. That is a bump up in the curve.
With NFTRH 290’s 29 pages, we did not get to the gold macro fundamentals segment this week. So I want to put up a brief update to go over a few charts.