NFTRH Interim Update 12.7.12

Jobs came out at +146,000 as people dropped out of the labor force, retail, professional services and hospitality.  Manufacturing and construction decreased.  Also, October and November ‘jobs’ were revised downward.  So if your b/s detector is sounding, you are not alone.

But gold is getting clocked on the knee jerk and for me at least, this report keeps some doubt in my mind as to whether the FOMC will raise the inflationary ante on Wednesday.  In other words, will they simply announce that Op/Twist is ending and leave only the MBS asset purchases as they are but signal no further T bond buying due to a supposedly ‘strong’ jobs report and stocks potentially rallying for Santa?

I don’t have the answer.  They could go full inflation in monetizing MBS and Treasuries but this news makes me not want to gamble on that outcome.  I am personally content to hold a high cash level and let events play out, possibly through the FOMC, and just watch the precious metals sector’s technicals.

The risk to a high cash stance is that FOMC goes full steroidal on monetization on the 12th and the precious metals launch and don’t look back.  As noted, I hold ‘too much’ cash.  But again this is where long-term gold holdings and a few key stock positions come into play.

As I tried to point out in #215, I just do not trust Bernanke to be as readable as some people seem to think he is.  Gold stock technicals will play a role in what I do or don’t do before FOMC, but understand that policy makers are playing a game of perceptions.  Is the jobs and economic picture good?  I seriously doubt it.  Retail is doing well around the holidays.  Big surprise.  I give much more weight to manufacturing.  My contact in the semiconductor industry just yesterday reiterated “dead”, at least in the Semi equipment end of it regarding the likes of MKS, Brooks Automation, etc.

Summary

If we had seen an undeniably weak jobs report today I’d have had more confidence that the Fed would not play games and get right down to the business of inflation and potentially add straight T bond buys to the announced MBS buys.  Now I am not so sure they will not punt out to January.  The stock market may do the heavy lifting for them in the meantime.

I am not a professional Fed or economic watcher, so this is to be considered one market participant’s opinion only.

The precious metals sector may have to move forward on its own merits.  The search for a bottom continues and the technicals will tell the tale.

  • Gold support at 1690, 1625
  • Silver support at 32.50, 31, 28
  • If HUI has not yet bottomed, next support is 420.  But higher low is still open at around 400 or even lower to the 380′s.
  • HUI-Gold ratio starting to break down from bear flag.  Watch this one.  It held up yesterday, today will be important.

Patience.

[edit]  The post-jobs hit to gold served to test the 1690 support area once again.  The subsequent reversal to the upside after the US open can only be considered bullish.  I like to see multiple data points and the fact that support was tested again during a knee jerk response to a data release makes it important.

In other words, 1690 is still the key support for the short-term and it held up when it could easily have been lost.

Also, gold stocks are green again for a second day (so far) and the HUI-Gold ratio is positive again.  CoT data is due at 3:30 ET, and depending on this we will refine the narrative for a potential bottom or reduced risk environment.  The CoT has been a major fly in the ointment since HUI lost 460.  I want to see significant improvement today at 3:30.

I suppose the main point is that it is time to focus on nominal technicals, HUI-Gold ratio and CoT.  If these come together to indicate direction, it is probably wise to tune down the FOMC noise.  And I am aware that I have been making quite a racket about that lately.  :-)

I am oh so slowly adding here and there to bring down a ridiculously high cash position.  When confirmations come in and FOMC gets behind us, so much the better and I’ll look forward to an opportunity to stop micro managing the markets – and you – and save some commission costs on all the trading.

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