An article at a popular gold website is talking about gold and Ukraine in the same sentence, let alone the same article. That’s not a positive. Surely people don’t fall for that one anymore, right? As for this technical buying, what is that? Chart is going up so they buy? This is pap, to be tuned out.
“The escalation of the Russia-Ukraine conflict prompted the safe-haven bid, while the improving chart picture for gold caused the technical buying and short covering.”
The other thing gold bugs should not have wanted to see was tepid volume and a failure to get back up into the bear flag on the GDX chart below. HUI, GDXJ and GLDX also sport these flags. On the plus side, MACD’s are triggered. Unfortunately, that takes a back seat to price action and volume.
The stock market vs Gold (SPY-GLD) has dropped over the last 3 days. It is now at a point where it will either bounce (middle of Bollinger Bands, 50 day MA’s) or continue on making last week a lower high with a date for a lower low to March. That would be a… anyone? Downtrend. Me, I’m going to let the charts decide here as I am all around. It’s not a time to try to be controlling the market. It’s a time to let it show its hand.
With all the ‘taper’ and now, compliments of Janet Yellen’s rambling jawbone, rate hike hysterics, the 30 year ‘long bond’ has held its ground. It could drop a little here and possibly form a bottoming pattern (right side shoulder), but the big picture view does not yet indicate we are in for a hard phase of rising long term interest rates.
Of course the situation is more complex for gold bugs, because it is the relationship between long and short term bond yields that they should be focused on (instead of Crimea and the whacky ‘China demand drop’ stuff).
Yes it is they of the ‘gold fair value of $800 model’, based on the inflation levels indicated by the CPI. You may recall Mssrs. Erb and Harvey being promoted by the media as gold was getting blown up last year.
The incredible gold interest rate correlation
This analysis is cartoonish stuff however, because it makes no distinction between yield relationships, which mean only everything to gold’s price values. Sure, they give us head spinning brainiac stuff like this…
“Consider a statistic known as the r-squared, which reflects the degree to which fluctuations in one thing predicts or explains changes in another. The r-squared ranges between 0 and 1, with 1 indicating the highest degree of predictive power and 0 meaning that there is no detectable relationship”
According to Erb, the gold-interest rate r-squared correlation is a “very high .78″. Oooohh.
Why don’t we just use our usual simple methods however and look at a picture. We’ll take Erb & Harvey’s 10 year yield and divide it by the 5 year yield. Then we will put gold in the bottom panel and duhhhh, just have a look…
Gold has been well correlated to the 10 and 5 yield relationship (with an exception middle of last decade when gold should have declined; a situation which I’d argue could have put some distortions into the gold market that got… worked out but good in 2012 and 2013).
This is mainstream media bullshit once again, dumbing everything down (gold follows interest rates) and baffling the masses with important sounding stuff that is actually way too simple.
If TNX declines in relation to FVX, gold will likely go down. If TNX rises in relation to FVX it will likely go up. Either of these conditions can happen against a rising or falling nominal rate backdrop. Gold’s fate would appear to have much less to do with what nominal interest rates are doing.
Two forms of money; one official but its only value is in ‘confidence’. The other is not really money, but its value is of something more than confidence. All confidence was lost in gold in 2013, so it had better have something more going for it. It is debt free as it is no one’s liability and it has been used as money for centuries.
Okay, blah blah blah… gold bug sighting above. What I wanted to actually do is show a chart of GLD & UUP looking pretty darned in line with each other over the last few months.
Whatever their differences, in the big ‘RISK ON’ environment cooked up by the Fed a couple of ‘risk off’ items have been fairly in unison outside the party. Today they are both above their 50 day MA’s.
Party on Garth.
Guest Post by Tom McClellan
January 16, 2014
Well folks, I am still stuck in 2013 because my dad passed away on Sunday and the services – due to the weather here – are not until Saturday. I am doing okay because it was his time and we’d said our goodbyes and I love you’s over the last year, but have a feeling I’ll be doing less okay on Saturday as I see in the eyes of all the people who knew and loved my father just what his passing means to them. I’ll move into 2014 sometime after that.
Meanwhile, business goes on and part of our business here is to find the b/s, understand it and avoid falling victim to it. Enter Gold’s prospects in 2014 look tarnished, a typical MSM piece filled with misguided perceptions for the public to consume. The public after all, was put out of gold in 2013.
Guest Post by Steve Saville
One characteristic of an investment bubble is dramatic upward price acceleration during the final 6-12 months of a long-term advance, followed by a price collapse. Beware, however, that it is possible for a price chart to create the impression of dramatic upward price acceleration even though nothing of the sort actually occurred. The reason is that a long-term advance at a steady annual percentage rate will look parabolic if plotted using a linear scale.