Gold Sector Parameters Reviewed
- Gold Price: 1690 is important support, next big support is 1625-1650
- Silver Price: 32.50 is short-term support, then 31 and finally big support at 28
- Silver-Gold Ratio: Still in short-term uptrend. Expect silver to continue to lead gold if FOMC comes with the inflation on the 12th.
- HUI-Gold Ratio is breaking down from the Bear Flag. The yellow highlight shows the area that must hold to avoid a negative signal with respect to a projected buying opportunity. Can ‘they’ break all our signals in an ultimate shakeout? Yes.
- HUI loses the 62% Fib retrace level, targeting the 420 support area we have noted previously. Sensitive momentum indicators like CCI and STO either indicate HUI can get a lot more over sold or HUI is building a bullish divergence. So which is it?
The precious metals are conveniently taking the hit into what could be the most strategic FOMC meeting of the year. It helps to have gold under control when you are preparing man made policy that will ultimately prove destructive from an inflationary standpoint.
Thus far however, it has served us well, relatively speaking, to put the tin foil hats away and just deal with what is. What is is a technical breakdown on HUI. Technical breakdowns tend to induce technical selling.
Speaking personally, I feel so much like an opportunist now but it seems like the clock is taking forever to tick toward 12.12.12 (FOMC). Where previously I have noted that I hold “too many gold stocks” and needed to hedge, I now hold too much cash and need to be ready for what I think could be a climactic event.
If we see gold taken to the low 1600′s and the miners find support and hold or turn up the HUI-Gold ratio in conjunction with FOMC, we will likely be on an opportunity; a potentially excellent one.
Short of that, the precious metals have taken a sufficient drubbing and could bottom any time before the FOMC. Have patience, but also understand that the bottom will not stand up and announce itself.
I continue to believe that the HUI-Gold ratio is the most important tool in play. If it diverges positively from bearish nominal price activity in gold and even gold stocks, then it should be a good and bullish signal. If it breaks down however, it is going to make being contrarian bullish much more difficult, for me at least. I am looking for a combination of this kind of bullish underpinning (HUI-Gold), support levels and FOMC to provide an inflection point.
In case you didn’t notice, the HGR is doing well today. It must stay strong to signal a coming end to the correction.
I was seeing bear flags (which usually entail a lower short-term low) for this ratio and the nominal HUI, but if MACD triggers up the precious metals could have a nice little signal to go along with the already strong Silver-Gold Ratio.
But as they teach in GoldBug 101, don’t get your hopes up too high. Just watch for a trigger and RSI to get above 50. That’d be a good thing.
Here is a little snippet from NFTRH 213 that showed the important indicator of gold sector health, the HUI-Gold Ratio (HGR) from three different views; daily, weekly and monthly. As you can see, daily must hold to keep the weekly intact, which in turn must hold to keep the monthly big picture of the secular bull (for the HUI, not this sad looking ratio) intact.
This is a difficult sector to own and indeed these charts say it is best to trade the stocks regardless of what one does or does not do with the bullion. But the conclusion is that until the HGR breaks down to a lower low, the current situation is viewed as a buying opportunity. On the other hand, HGR will serve as a handy risk management indicator if it should unexpectedly collapse. From #213:
Daily HUI-Gold Ratio (HGR) needs to hold a higher low to both the May and July lows here or else the story is bearish…
That is because a new low here would threaten the higher low from Armageddon ’08, highlighted in yellow, per the chart directly below…
Which would in turn threaten 2008’s higher low to the one from the beginning of the bull market in 2000.
So you can see that it is kind of important that the daily HGR hold its parameter.
It is a simple conclusion; HGR must hold a higher low on the daily to avoid a threat to the July and May lows so that the weekly view can remain intact and not threaten the 2008 low and eventually, the secular low of 2000. Meanwhile, higher low status across all time frames means the indicator is not broken, despite the formerly “normal” correction that become somewhat intense last week.
The HUI-Gold Ratio was broken when it lost the moving averages first, and then later support. This was our early warning in the newsletter as the state of the daily HGR was followed since the summer. Shown below is the current state of the HGR with its new mission being ‘do not make a lower low’ to the July low.
Dialing out to a bigger picture, we followed the big picture HGR for a couple years as it headed toward a higher low (in May) to the 2008 low. That is still intact. But it is important that the short-term higher low remain intact or else the long-term (2008) low is going to come into play.