Well the media always need to have a reason and this morning the reason for the hard down in the stock market is apparently second thoughts by investors on the Fed Minutes and QE tapering (with a side of Portugal/European problems).
What is actually happening is that it was time for a summer disturbance (at best) due to the factors we noted in the NFTRH excerpt on Monday. At worst the bull market is ending, but the favored plan is for a significant – possibly scary – drop that refuels the bull for one more thrust.
But that preference does not have a lot of conviction behind it. The only conviction I have right now is that the market is/was due for a July breather and this could be it.
People should have been prepared for this.
Over the last 2+ years of a cyclical bear market in gold I have not seen much, if anything, of Jay Taylor. When I first came along to the gold sector in 2002 there was Jay among several other standbys writing about the precious metals. Some of them I very much respected too.
Taking this article at face value and without prior judgement we’ll parse through it and see what we have…
Martin Weiss put out a very interesting piece tying together various rising political tensions in the Ukraine, tensions between Japan and China in the East, and rising tensions in the Middle East with rising levels of inflation. Again, I think my Inflation-Deflation Watch [IDW] is telling us that whether it makes sense or not, we are now starting to see a breakout in inflation, at least in terms of overall asset prices.
Off to a bad start Jay. Martin Weiss, are you kidding me? His articles would not be complete without the obligatory pictures of angry Arabs and burning oil derricks. Ukraine? Geopolitical tensions and inflation? Is that the sustainable case for gold? Your IDW is telling us that inflation in terms of asset prices is breaking out? Inflation has been breaking out ever since the biggest part of the stock bull market engaged in 2013 and that inflation has fed directly into stocks not gold.
This chart needs no mark ups. Very simply, gold needs to follow the miners (already crossed) and cross MACD up and then take out the area where the Bollinger Band mid point meets the (red) EMA 45. Combine these with a green RSI over 50 and AROON going 0+ and you’d have a genuine bull market in gold.
This chart will be stored in the Public Charts list linked above so you can follow its progress any time.
I had just done an NFTRH update using GDXJ’s 30 min. chart and the darned chart changed right in the middle of the post (funny thing, those short term views) and I decided that it would just put too much noise on anyone not already off on what looks to be a great weekend, weather wise here in the North East at least. So that is scrapped.
But part of the post also included the Gold-Silver ratio, which is at an extreme over sold condition. The chart indicates that gold stocks often decline after sharp declines in the GSR. All within the normal and bullish context of an extended bottoming pattern? There’s a very good chance that’s the case. But silver is over baked vs. gold, at least in my opinion.
This article at Hard Assets Investor talks about Jeff Gunlach’s bullish gold call for 2014 and uses Dylan Grice’s 2012 call as an example of how the end of the world (i.e. gold’s safe haven value) can be put on hold indefinitely.
So is Gundlach wrong today? Grice wasn’t necessarily wrong in 2012. What he called “the largest credit inflation in financial history, a credit hyperinflation” has instead rolled on…taking asset prices higher and crushing interest rates. But it hasn’t, as yet, hit the value of money itself.
Nor will it hit the value of money, especially the US dollar, until all confidence is lost in the system. We are about a million miles away from that condition right now (see second chart below). Confidence will be lost first in the assets that are benefiting from the inflation – like stocks, so strategically at the heart of the wealth effect that policy makers are trying to stimulate – and then in policy makers themselves. Then we’d have a big bull market in gold for all to see.
In NFTRH 292 we reviewed this chart with some thoughts…
The real price of gold, as adjusted by commodities is making some nice baby steps toward rebounding. Here is a picture of the gold ETF vs. certain key commodity ETF’s and markets, that show the progress of what would be the most desirable condition (a rising real price) for a healthy gold bull.
And then of course there are other notable measures like Gold vs. Stock Markets. Here is the progress vs. SPY and EZU…
Here is the weekly chart of gold that NFTRH has been working to for several weeks now. The thumbnail at right shows the cluster that gold needed to blast through to get bullish. Check. Gold had positive divergence by MACD and kept its AROON uptrend. These finally resolved bullish this week.
Here is another chart we’ve been using to keep track of gold’s big picture in Euros. The fear and angst of the Euro crisis has been closed out with the gap fill. That is another way of saying that the legions who became instant gold bugs in the Euro Refuge Knee Jerk Sweepstakes have now been… how do we put this? Let’s think of a nice sanitary word… processed. The knee jerks have been processed and the investor base cleaned out.
Much the same has gone on in the US, although the process has been much more drawn out, commensurate to the intensity of the US financial crisis and ‘great recession’ that the average person and conventional analysts happily package as being in the past. Just keep that ZIRP going there Janet. That’s the biggest tell right there. A healthy economy, record stock markets and employment and manufacturing zooming upward and still… ZIRP out into 2015 or… ?
There is a case for gold as there has been since 2000.