[ed: Excerpted from NFTRH 301's opening segment. Those looking for paint by numbers directions and casino game instructions (talking to readers at a certain site that may or may not re-publish this article) feel free to just skip the article. You will not get what you are looking for. The balance of NFTRH 301 did the nuts and bolts technical work on the relevant US and global markets, precious metals, currencies, etc.]
[edit 2] Based on reader feedback from another site, it appears I do not understand inflation, nor that gold’s purchasing power is superior to that of the USD over the long term. What I take from this is that if you post anything positive (like USD’s ‘price’ potential) about the buck and/or negative (like gold’s price vulnerabilities) about gold certain handbook carrying people in the gold ‘community’ are going to lash out first, and read/consider second. In other words SSDD.
Take a look around the gold bull landscape and tell me how many of them are featuring a chart like this, showing the US dollar in a bullish short-term stance (to go with the weekly bullish stance we have noted for so long in the ‘Currencies’ segment).
This is not to say that the US dollar has real value. How can it when it is hopelessly dragged down by a national debt-for-growth obsession. But as with gold, value is one thing and price is quite another. It is just that one (USD) receives a price bid due to a ‘nowhere else to hide’ sort of mentality by the majority when asset market liquidity becomes constrained and the other (Gold) receives a more solid value bid, over time.
Gold led the massive Fed balance sheet expansion in 2008, rolled upward in concert with the more gently expanding balance sheet and then topped out and dove as the Fed balance sheet kept on… well, you know.
So, despite the promotion of QE 3 gold (and silver) tanked into a bear market. The question is whether or not gold is still leading the Fed’s balance of ‘asset’ holdings or whether gold through various – and well documented – official manipulations like the inflation-sanitizing Operation Twist, has some catching up to do.
Just a friendly reminder from your friends here at biiwii.com that we are in an economic contraction, not an expansion when viewing the big picture. Indeed, it is this site that has highlighted the little post-2012 expansion more vigorously than any other bearish leaning entity that I have seen, and earlier than most bullish entities I might add.
That was because of the Semiconductor Equipment ramp up → Palladium-Gold ratio → ISM upturn → Jobs upturn continuum we have been on. But that is a positive cycle within a much larger cycle that is very negative. Here’s the updated view of counter cyclical gold vs. cyclical commodities, which may be starting its next up turn.
If I am right to be using this road map then I am also right in thinking that lots of people are going to find out one day what a bill of goods they bought when they (finally) bought this cyclical recovery sold to them by conventional analysis from the conventional financial services and media complexes.
We have not checked in on this motley crew at the public site in a long time (NFTRH keeps a running tab each week). Here are the monthly views of the basket cases we call major currencies.
Uncle Buck and his reserve status were leveraged to the hilt by “The Hero” and now his successor is trying to gently talk the Fed out of its policy stance over time. In other words, tightening is going to come one way or another and Janet Yellen is trying to go the orderly route. When this process becomes disorderly, the USD is likely to benefit from the liquidations elsewhere in the asset world.
Technically, USD is in a long basing pattern. There are those who think it is basing before a renewed decline, reading a Symmetrical Triangle (continuation) pattern into poor old Unc. I think the odds are it is bottoming over the post-2008 years when inflation – try as they might to have promoted it – simply has not taken root *. Leaning bullish, watch support and resistance.
The entire rally in the precious metals since early June has come against a backdrop of short-term yields rising faster than long-term yields. In other words, it has come against a risk ‘ON’ atmosphere in which there is little anxiety about inflation or systemic stress. That is not favorable for gold.
What has the precious metals rally had going for it? Not the chart above, that’s for sure. It has had gold’s price vs. some commodities (esp. crude oil) and stocks bouncing and that’s a positive. It had the blip in GDP going for it. It also had a massive speculative short covering and long-biased momentum play in silver. It had the usual gold bug touting about geopolitical strife and finally, some bank in Portugal crapping out.
But the chart above is not bullish for gold and it joins the CoT data for gold and especially silver as a negative, which finally manifested to some degree yesterday. Now the idea is to find the buying opportunity. Now it gets fun if yesterday (actually last Thursday, with the big bearish candles on the miners that NFTRH noted) was the start of the periodic games known (around here, anyway) as the Running of the Gold Bugs.
What comes next is a sharper focus on the nature of the fundamental backdrop if/as the sector declines toward some logical support areas. NFTRH? Yes, it’ll be on that job.
The gold and silver CoT report has degraded again this week. Does it matter? Not yet apparently.
Silver vs Gold became very over bought by daily charts. Silver also got more suddenly bearish by its CoT configuration. Okay, now let’s juxtapose that against silver’s weekly situation and what do we have?
What we have is a still-intact down trend from the 2011 blow off in silver vs gold and in nominal silver. Further, the ratio is at the top of its long-term down trend channel. Conclusion? Why, gold is better than silver.
A problem for the precious metals sector however, is that silver usually leads the rallies that most gold bugs tend to get excited about.
A problem for most global markets is that silver usually* out performs gold during phases of liquidity and risk ‘OFF’.
So is the silver-gold ratio going to break out of the down trend? Personally, I wouldn’t bet on it.
* In normal markets anyway, which admittedly the last year has not been with regard to some of its traditional functioning vs. the indicators.
The monthly chart updates the situation in gold vs euro and tells a little story.
You see, once upon a time millions of Knee Jerks came flying into gold in panicked response to a credit meltdown in the weaker components of their union. The first of these monetary refugees created ‘fear gaps’ and the last of them, the unsustainable blow off top. By then, the gold mini hysteria had gone global and gold – all those unhealthy holders in tow – was cooked for a coming bear market.
Now gold vs euro is in the finishing stages of what looks like an Inverted H&S bottom after poking down and closing the open gap in 2013. The left side Shoulder did this and then the Head rammed down even deeper just to make sure. Now we have Portugal and all those low quality bond yields that were until yesterday showing a clear lack of respect for risk management.
People never change. They herd, they over intellectualize and they take too much to heart what other people say, without realizing that other people have agendas. Charts on the other hand, simply tell stories over time and space. This one has an interesting story.