As expected, there was improvement this week in the gold and silver CoT data. Silver did not do much but it had been improving much more steadily than gold, which mysteriously (ha ha ha) took a sizable hit a week ago Thursday. This data includes that hit. The goons did some covering on that day. Click graphics for full view…
In the previous post about ‘Gold Miners & Inflation’ it was mentioned that the 2013-2014 would-be bottoming grind in HUI has been almost exactly the duration of the 2010-2011 topping grind. Here is a visual to put with that statement.
The current yellow box is an exact duplicate of the 2010/11 box, which came with an over bought MACD crossed down. The breakdown candle implies that September would be the month that a break UP candle comes into play if this relationship has any predictive power.
Taking it further, as also noted in the previous post, the Ukraine noise does not help the sector and indeed could hurt in the short-term, because it keeps the wrong gold bugs on the tout. So NFTRH keeps open some minor downside targets.
Taking it further still, those downside targets would end up being buying opportunities if gold’s macro fundamentals start to improve, which despite the emails I get to the contrary, really has not happened yet beyond a few ongoing positives. But it had not happened yet in 2000 either.
A constant struggle in writing about the precious metals is in trying to be clear about the differences between the gold stock sector and other sectors when it comes to inflation. That is because there are two types of bullish environments for gold stocks…
- The ‘play’, where all the inflatables rise with inflation expectations; this would be the ‘gold is silver is copper is oil is hogs is corn’ trade. This is the play where the inflation and commodity gurus tell you to buy resources to protect yourself from the US dollar crash that is going to happen any day now. A problem is that in this environment many resources often out perform gold, thus hurting miners’ fundamentals.
- The other is a longer trade or dare I say it, investment. This is where commodity prices are declining and the USD is firm. Gold is stronger than silver and the inflation oriented gold bugs get bearish because they can’t understand how gold will not go down with oil and indeed, inflation expectations.
I have often called #1 a ‘SELL’ on any strong rally that results. #2 is a more difficult animal because it can be a grind as it sets up. That grind would be the misperceptions game kicking in where the majority gets fooled into thinking if copper goes down so will gold. After all, China’s gonna decelerate again!
We are operating to parameters on a would-be gold sector bottoming process, which has been a year+ long grind (‘grind is good’ as it absolutely ruins peoples’ nerves over time) and which by the way, everyone sees now as either a final bottom or a consolidation before the final and spirit destroying wipe out, depending on their Team’s hopes and aspirations (bull or bear).
About a year ago NFTRH projected two possibilities (within the context that it was only in the realm of potential) and they were a ‘W’ bottom or failing that (it promptly failed) an Inverted Head & Shoulders on the HUI. Today a new pattern has joined the IH&S and it is a Symmetrical Triangle, which would be a consolidation before the final crash.
I used this morning’s bump to cover the DSLV short (i.e. silver 3x long) position at a shade below break even (-.5%). The reason being that it is in a series of lower lows and lower highs. I think that silver is going to be a buy soon, but unless it paints a green circle above 19.70 the potential is there for lower prices first. I don’t want to be leveraged in that case. I’ll just stick with a few normal and relative quality mining positions for now. Here’s the current silver price from BullionVault (you can pull this and the gold chart live any time using the link above).
 It may be better (assuming miners go bullish) to pick up the cream of the cream (though royalty’s relative valuations are a question now) and start one’s own mini SGDM. I did that today adding GOLD to already existing EGO, BTG and GG. SGDM does not trade much volume and I don’t like the bid/ask spread.
I give SeekingAlpha a lot of grief, and rightly so. Over the years, since I was one of the first people they invited to write over there it has become a denizen of stock pickers, perma bulls/bears (depending on the trend, which is now a mature bullish one) and promoters. They usually refuse TA-based content in favor of stock picks (although a few TA’s somehow sneak in, like the perma bear on gold and his Elliott Waves; must be a more lenient editor). But I digress. I basically post there when I have something that is not TA, have the time or feel like it, which is not often lately.
But there is good research there as well. Case in point was Ashsraaf A., a technology writer who first put me on to the case for Intel. Sadly, he seems to have disappeared into thin air. There are other good writers as well. Ben-Kramer Miller is someone I follow simply because he unearths continuous information about gold mining, whether in reviewing earnings or discussing the sector. I don’t know enough of him to get a feel for the overall quality of his work, but his articles have been helpful to me to a degree.
Reference this article, which made me aware of a new alternative (to GDX) for gold miner investment, the Sprott Gold Miners ETF, SGDM. The fund actually discriminates rather than oafishly following an index. The areas in which it discriminates are debt, costs, growth… in other words, it seeks to cull out or minimize the crappy situations, of which there are plenty in the gold mining industry.
Here is the information page for SGDM (including Fact Sheet) at Sprott along with its holdings…
From a post on August 6: “I could miss the opportunity of a life time (always a bad way of thinking as a trader) but I am not going to take the chance that this is a little bear flag forming on SLV. I took my modest 3% from shorting DSLV and booked it.”
It was a bear flag.
Well, they say you’ve got to take risk to make gains so today I shorted DSLV again after silver plunked the parameter NFTRH has had on watch for weeks now, support at 19.50 to 19.75. What is good about the trade is not its surety of profit, but its well defined stop loss. But if silver holds the support zone and heaven forbid turns up, the profit should be a lot bigger than the humble 3% last week.
With today’s hard down, the parameter is whisker thin, which means the stop is intolerant. But silver no longer has the issue we (NFTRH) were concerned about as it got too pumpy both nominally and in relation to gold. So I’ll consider myself a bull coming in to replace the momo’s who have been scattered to the hills again.
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.
No, she saw the silver-gold ratio in a similar pattern to her own but decided to go up town while the SGR began its journey to Palookaville. It’s just interesting when markets provide these little windows into inter-market and inter-asset correlations. I have held and added to Goldcorp through the recent corrective disturbances.
The similar shapes of the patterns led to different outcomes, and this is where people need to put their thinking caps on because there is meaning in these outcomes with respect to the macro picture.
Guess who’s now getting over sold at a support area after becoming hysterically over bought as a short-term caution signal for precious metals (and broad market) investors back in late June? Why, it’s old friend the Silver-Gold (SLV-GLD) ratio, now reset and no longer an issue from an over done speculation standpoint.
Also of interest is that the gold miners (and even the silver miners ETF) did not break down from similar looking patterns.
Of more interest still? Will the stock market gain a favorable tail wind if silver starts leading gold? That is the traditional correlation, but there has not been much traditional in that relationship over the last couple of years, so we’ll let it play out. For now, we are on a stock bounce that is sticking to its original goals as we laid out well ahead of time.