Below is a summary of some of the aspects we follow in NFTRH to gauge a future investment stance on the gold sector. It is much more complex than simply hearing dogma that seems to make sense and then holding on for dear life…
The hype is dying. 10 years of inflation hysterics have gone down the drain even as global policy makers pull out inflationary bazookas and use them at the slightest hint of economic trouble. The BoJ’s recent action was just the latest and most striking in its timing. Global markets were bouncing within correction mode and the Yen had just pinged a key resistance level. The BoJ then blew the Yen up with policy designed to at once reward risk takers and asset holders and mercilessly punish the Japanese people, renowned for the ethic of saving.
But the global inflation is dying despite these periodic bazooka blasts. The US Fed as much as admits it wants inflation. More accurately, it will do anything to stave off the next deflationary impulse because when that takes hold it is going to unwind the system, and they know it. Why on earth do you think noted Hawk James Bullard was trotted out the moment the stock market took a routine correction in October? Here Jim, get out there and eat that mic and calm them down.
Gold is not about inflation and in this cycle it, as a squarely risk ‘OFF’ asset, is about the opposite, the deflationary unwinding of the inflated excesses which now are no longer clustered in commodities and global markets, but in US stocks and the balance sheets of certain corporations set up to benefit.
In a dis-inflationary environment, which is the preferable one for the gold stock sector, the pain comes first and the rewards for those left standing come second. We have not exited the pain phase for gold bugs and most people still think ‘no inflation, bad for gold’ when they should be thinking ‘no inflation… that means eventual deflationary impulse… bad for the economy and stock markets and one day, from the ashes good for the gold sector when and only when gold out performs other assets positively correlated to the economy’.
Goldilocks has been in play in the US as the global dis-inflationary pull has dropped the TIP-TLT ‘inflationary expectations’ gauge lower. At some point Goldlilocks will morph to something less benign for the economy and for stock bulls. But it has not yet.
Across the Curve channels Buffalo Springfield and sees the commodity Armageddon as bond friendly, to the point where Yellen can take the rate hike for 2015 off the table. Who’d be surprised about that?
Reformed Broker on 9 surprising things the subject of my favorite book on trading/investing/markets said.
Allow me to share a simple sketch I drew that was part of an NFTRH interim update for subscribers last night. The black line is where we have been. The blue line is a projection of what a typical correction (whether a healthy interim one or a bear market kick off) might look like.
We used real charts of the Dow, S&P 500 and Nasdaq 100 to gauge the entry into the current correction and now the resistance points to the expected bounce off of the US market’s first healthy sentiment reset in quite some time. But our cartoon above gives you the favored plan on how the correction could play out.
Well, the headlines are rightfully bearish for gold, silver and the major precious metals stock indexes, ETFs and senior gold miners. The technical damage is real. Today’s burst could be and probably is just short covering. [edit; post was mostly written before the end of day flop]
But improbably enough, there is a stealth uptrend going on in certain royalties, miners, developers and explorers. Believe me, if you could hear me talk instead of write you would not hear anything resembling desperation in my tone. That is because I have worked hard during this bear market to manage risk, stay strong and out of the bear’s way. So I am not talking any sort of a book here other than my biggest picture view (an economic contraction environment that ultimately benefits the counter cyclical gold sector), which could still be out on the horizon.
Don’t take my word for it, here’s Investopedia’s definition of an uptrend:
“Describes the price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.”
Complicated it’s not.
The following charts are what they are (in up trends), and considering that legions of gold bugs have now sworn off the promoters and puked up gold for good, the time is nearing that this sector will again be investment worthy. At the very least, NFTRH for one is going to point out positives along with the ample negatives. Just so we keep a level playing field and an unbiased viewpoint.
Well, at least it looks like a reversal in the gold stocks. Right at the 220 measurement too. Now we enter the realm of ‘Real or Memorex?’, bounce or rally resumption? There is a very logical target lower if this proves to be just a bounce. But 220 is viable too. So it’s just going to take ongoing work… and gold fixing itself technically. That’s a biggie.
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.
NFTRH update yesterday before the downside reversal:
“Gold stocks are in the resistance target zone, so understand that negative reactions are becoming more likely.”
Okay, a reaction and downside reversal it was. But now we are left with the dilemma of GDX above its neckline, on a relief recovery day, but still below the resistance point that limited it yesterday. The reversal candle painted a big engulfing hunk of red on the chart, which today’s relatively low volume rise is attempting to repair.
The gold stock sector is pulling back today after HUI made a new recovery high of 242.53, just below our anticipated strong resistance zone of 245 to 250. Hopefully, traders have been taking some profit. What comes next for gold stock players is a game plan…
 This post was written while gold stocks were positive this morning. Now? Not so much.
After making fools of the gold stock bears the initial thrust off of the right side of the bottoming pattern is making heroes of the bulls, especially those who remained steadfast in their bullishness throughout the bear market. Indeed, there is now some chest thumping going on by Team PermaBull.
The first move has been impressive in bursting upward off of what NFTRH has called ‘the 205 parameter’ (a right side shoulder point of a large Inverted Head & Shoulders). The initial move is maturing amidst the bullish cheer.