Among its 29 pages of high quality market analysis, this week’s NFTRH (#287) reviewed the Commitments of Traders (CoT) structures of a few markets and their implications.
The above CoT graph clearly shows that gold has declined as the structure improved (red arrows). It then bottoms with the circled extremes and rises in conjunction with a degrading structure (green arrows). Gold is still on its journey toward bottoming.
Better yet, look square at it because this is the market, not ideology, making the rules. I don’t want to pile on (ref: Tom McClellan’s guest post) but this is extremely gold unfavorable with yields up and short term yields up way more. Insert here the boiler plate about not taking any one day’s reading in a vacuum… but then consider the spreads have been degrading nearly every day for a week now.
Gold will get where it is going one day, but not until fundamentals come back in line.
Guest Post by Tom McClellan
April 17, 2014
On the “blood red moon” day of April 15, gold had an impressive downturn which changed the whole picture for gold prices over the next few months.
Viewing one day’s action on its own is a recipe for being misled. But viewing it in the right context is a great way to draw insights about what the future holds. And one of the most important contexts I have found for interpreting gold’s price action is to put it into its proper place within the 13-1/2 month cycle.
Ukraine war hype, China demand drop, GOFO mysteries… these are the short term noise inputs on the gold sector.
US Treasury bond yield spreads, gold vs. commodities (i.e. the ‘real’ price of gold), gold vs. the stock market… these are some of the fundamental considerations that actually matter and they have taken a hit since January.
It is easy to say ‘I am bullish in the big picture’ (measured in years) but it is not so easy to actively manage in the smaller pictures (measured in days, weeks and months) with all of the above noise inputs and more bombarding the poor individual player.
We use shorter term charts to manage the shorter time frames. Daily charts have most recently indicated a bearish set up as bear flags formed across the precious metals complex (with the exception of silver, which never got going to begin with) last week. Weekly charts continue to indicate that an extended and oh so grinding bottom may be forming, but that includes the potential for ups and downs, also known as volatility.
There is also a lot of noise lately in the stock market. The US stock bull celebrated its 5th birthday last month. The last 2 cycles (the manic phase of the secular bull ended 2000 and the cyclical bull ended 2007) were each approximately 5 years long. Today let’s retreat to the calm of the long term monthly charts and get a snapshot of the big picture.
The S&P 500 has a measured target of around 2190 that we have had open as a possibility since the big breakout occurred in early 2013. A measured target is just that, a measurement; simple math. It is not a directive and therefore 2190 is not hype, it is just a possibility.
Why am I a short term trader now? Because the market has instructed me to be that, with a bias toward a bigger macro change in the markets on an intermediate time frame. An intermediate trader is what I prefer to be, but the market didn’t care about my preferences last time I inquired.
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.
CEF’s net asset value does not imply that the bugz are over bullish. Quite the contrary. It is selling at a decent discount to net assets and could be viewed as a long term value for those who don’t think that precious metals have gone the way of the Dodo Bird.
So as lame as the precious metals (esp. silver) have been acting, this is one for the bulls because it sure is not concerning that gold bugs are not putting their money where their convictions are.