Tag Archives: copper

Copper Gold Ratio

The Cu-Au ratio is actually on a breakout signal that would favor stock bulls, economy bulls and happy thinkers everywhere.

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Cu-Au ratio, click for full size view

Well, maybe that is an exaggeration because all trend lines break sooner or later.  But Cu-Au has broken the severe downtrend out of 2006.  If the green dotted line breaks down, we are going to deflationary hell.  If it holds, there may yet be an inflationary recovery play in the making.

To review, the top in 2006 came as copper blew out as one of the featured players in Alan Greenspan’s credit stoked inflationary bull market.  The top in 2011 came as Bill Gross announced that inflation was going to break out and he shorted the long bond (oops).  And now, here we are.

It’s not exactly an inspiring picture for the positive people clicking the heels of their ruby slippers, but Cu-Au did break a downtrend line, and is above an uptrend one.  It will be interesting to see if it holds the green dotted line.

Copper Prices Break the ‘Wrong’ Way for Inflation Bulls

The setup for the gold sector will be when all this other stuff tanks and when the commodity and inflation bulls are rinsed away with the broad stock market.  We are on a secular counter-cycle and that is no place for copper or the other positively correlated stuff.

Sometimes I write things like that and it sounds silly, even bringing ridicule from certain areas (and speaking of ridicule, I’ll mention Prechter until I am blue in the face if needed to make my points).

Casino patrons tend to live in the immediate here and now, always emotionally or egotistically looking for validation to their views.  The market moves at its own pace and copper (along with the rest of the industrial metals complex) shows that on the big picture things may not be so rosy.

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Cu weekly chart is violating a parameter

NFTRH 230 Had Plans A, B & C… Copper Prices Eliminating A?

NFTRH’s biggest picture plan is B, whereby chronic economic contraction is fought tooth and nail by inflationary policy makers.  Plan A (with its inflationary tide lifts many boats in the short term theme) seems to be going out the window with Doctor Copper and the China story.

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Copper daily chart

A is the plan I most wanted to see be eliminated because it is indicative of a more honest picture of events where the inflation/commodity bull geniuses will be punished for preaching that you just buy ‘resources’ and ‘hard assets’ to protect yourself in this environment.  No, in this environment, the dollar can continue to strengthen leaving the ‘gold is silver is oil is copper is hogs’ inflation crowd scratching their heads.

But we have the US economy sticking out like a sore thumb as it grows jobs and industries.  In the short-term a world experiencing deflationary pressures is benefiting as “Our Hero” (the Atlantic) inflates without repercussion.  This will not last.

Plan B has the precious metals going down with the deflationary pull before making a big recovery and Plan  C has the bottom already in.  These are to be determined through honest and ongoing work.  But it sure looks like A may be going out the window and that is something I can make sense of.

NFTRH Interim Update 2.27.13, Market Review

The gold miners are on the expected bounce from very over sold conditions.  As you can see, HUI, GDM and XAU are all dealing with resistance at the ‘neckline’ to the would-be massive topping pattern.  Weekly chart:

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HUI, GDM & XAU gold stock indexes

The HUI target of 100 measured off of this pattern is not the favored scenario.  I am leaning toward an A-B-C correction to the cyclical bull out of 2008.

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HUI weekly chart

The question is whether ‘C’ would come at the solid support zone in the low 300′s or lower at around 250.  I lean toward the low 300′s, but…

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HUI monthly chart

The monthly chart shows that if this is a major secular bull market retrace, the 250 level (62% Fib is 265) is doable.  Keep it in mind.  Alternatively, the miners can get back above the necklines, hold strong and call the correction done at the recent lows.  The neckline is a parameter and it has not yet been registered.  Thus, the downside targets remain active.  In resisting bottom calling, we have been right since HUI 460 broke down.  But be aware that this tack could prove wrong at any time.  In the absence of strong bottoming evidence I am going to go for keeping us safe first, and making ‘coin’ as speculators second.  I am going to stick with the parameters shown above.

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Gold daily chart

Gold is gold.  I sleep soundly.  But for those keeping score at home, the metal has risen hard toward a notable resistance zone.  Gold has been beaten with the ugly stick in the media and it is becoming fashionable for buttoned down financial houses to be calling the end of the bull or lower targets or whatever it is that trend followers and manipulators do.

On the other side, the gold “community” is revving over the leveraged short speculators story and is a little too frothed up over, and aware of the deplorable sentiment in gold.  This is a bit of a concern because really, did the majority of gold bugs suddenly become effective contrarians?

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Copper daily chart

Copper dropped to a notable support level and reversed.  This combined with the VIX rising hard to fill its gap causes me to wonder if this week has already seen the ‘healthy’ correction to the stock market.

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VIX daily chart

We’ll stick with the low 1400′s as a reasonable target for the SPX if it is going do the right thing and unload some momentum players before a renewed rise to potential upside targets.

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S&P 500 weekly chart

Most US and global markets look like they can go lower, technically.  But nominal junk bonds have not broken down, nor have their ratios to investment grade bonds and Treasuries.  This implies that the will to speculate is still intact.

After the current bounce attempt, we will see if the stock market resumes its decline.  That would be the more sustainable thing for it to do.  But the VIX is a concern for bears because it has already satisfied its upside objective in closing the Fiscal Cliff gap.  Could bulls use this week’s mini hysteria to pump a final leg to the bull market?

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Euro weekly chart

The Euro’s post-crisis recovery has gone hand in hand with global asset rallies.  Euro has declined of late and is now just about at our target, while…

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US dollar, weekly chart

Uncle Buck has invalidated the H&S pattern on the weekly chart.  USD could be the bringer of ultimately bad news for asset markets, but it is over bought by daily – if not weekly – charts.  This could be another hint that markets will not decline to the equivalent of SPX low 1400′s and instead resume the rally to termination some weeks or months down the road.

Bottom Line

The precious metals are in a sometimes on, sometimes off contrary stance to the stock market.  Yesterday it all went up.  Gold stocks are still dealing with very important resistance and sector sentiment aside, the picture does not (yet) look good.  Gold is in a supreme sentiment setup, but can chop and grind around for an indefinite period within a trading range between support in the low 1500′s and current resistance in the low-mid 1600′s per the chart above.

This remains – in my opinion – a trader’s market until signals become clearer.  A big macro pivot still remains the theme for 2013, but it is not yet indicated to have arrived.  We continue the weekly process of defining and painting the picture going forward.

Au-Cu, Au-WTIC & Au-SPX

The US Fed is pumping the money supply and trying to manage the unmanageable.  There is now ‘QE exit’ hand wringing at each FOMC meeting, which comes out later in the minutes as the markets hang on every fretting statement that these policy clerks utter.  Then the jawbones come out and talk nicey nice in the media and the market calms down.

They are not going to be able to manage this to anything other than a very sad outcome.  They actually seem to think that policy making is bigger than the market and the economy.  But it isn’t.

We are in an economic contraction and even after gold has been blown up, its ratio to the 3 Amigos of positive economic correlation continues to indicate the counter cycle.

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Gold ratios to copper, oil & stocks

Gold bugs need to be really careful here.  There is still bottom calling going on and it is best not to root root root for the home team in any kind of a speculative casino patron type manner because the precious metals may have entered the realm of macro economic indicator and exited the realm of near term profit play.

The destruction in gold and gold stocks along with the now pronounced weakness in key commodities like copper and oil bring the prospect of deflation front and center, or rather the prospect that the inflation is not taking in economically sensitive materials and resources.

Yesterday the St. Louis Fed updated the Monetary Base data and it is still boinking upward.

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Adjusted Monetary Base, updated 2.21.13

But then the dBoys would immediately produce this picture for contrast…

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M2 Velocity

We are in an economic contraction and they are still inflating against it.  The big question – the one for all the marbles – is ‘is it deflation first and then hyperinflation or the other way around?’

I cannot shake the feeling that what the precious metals and now commodities are indicating is much darker than what the pom pom waving gold bug community may believe.  It’s an economic contraction and that is the only environment that the accursed gold mining sector has a chance to thrive.

But in that scenario they go down first.  And boy have they been going down.  They may have bottomed and they may not.  I have refused to bottom call a thing since HUI lost 460′s parameter to normalcy.  I’ll just keep it that way, pending what any new data points that any coming bounces may produce.

But a bigger question is what are the PM’s forecasting?  People need to get that answered right.

Commodity Prices Going the ‘Wrong’ Way Too

Economic contraction anyone?  The economy was bumped recently by the sloshing liquidity.  But we are in a secular economic contraction and deflationary impulse.  What will our friendly policy makers do when this thing starts to flop again?  They have two choices:  1) sit and watch it implode under the weight of its own leverage or 2) inflationary panic at an ever more intense rate.

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They want higher asset prices, and hence commodity prices.  It’s the only way they perceive out of this.  Get some bubbles going somewhere, anywhere.  But it’s not taking.  No bubbles out there.  And nobody’s looking at the bombed out precious metals are they?  The PM’s have indicated deflation, haven’t they?

For 2013 and beyond you might want to think about concepts like building pressure and popping corks.  Stuff like that.