Outside of the sound practice that is physical gold ownership in a time of monetary gamesmanship, the precious metals sector is all about speculation, at least according to 9 out of 10 chart jockeys and momentum junkies micro managing every short-term twist and turn.
Indeed, NFTRH manages gold, silver and the gold stocks on down to the short-term views as well, but that is only because the long-term views have stated that this is a time to be paying attention. Do we pay attention because we have waited so long to promote our orthodoxy and finally be right as gold bugs? No. We pay attention when a chart tells us to pay attention.
While we manage the shorter-term views (both macro fundamental and technical) rigorously in the weekly report and interim updates, here I’d like to dial out to the big monthly picture with 3 large (click to expand as needed) charts of HUI, Gold and Silver to see their stories, which are the reasons we are managing shorter-term views.
HUI Gold Bugs Index
First HUI monthly reviews the warnings to the analysis from 2012 and 2013. They were very clear and should have kept people out of much of harm’s way with respect to gold stock speculation.
Guess who’s now getting over sold at a support area after becoming hysterically over bought as a short-term caution signal for precious metals (and broad market) investors back in late June? Why, it’s old friend the Silver-Gold (SLV-GLD) ratio, now reset and no longer an issue from an over done speculation standpoint.
Also of interest is that the gold miners (and even the silver miners ETF) did not break down from similar looking patterns.
Of more interest still? Will the stock market gain a favorable tail wind if silver starts leading gold? That is the traditional correlation, but there has not been much traditional in that relationship over the last couple of years, so we’ll let it play out. For now, we are on a stock bounce that is sticking to its original goals as we laid out well ahead of time.
I could miss the opportunity of a life time (always a bad way of thinking as a trader) but I am not going to take the chance that this is a little bear flag forming on SLV. I took my modest 3% from shorting DSLV and booked it. This little trading account that I reserve mostly for shorting has been on a hot streak lately and now, with no positions open none of it can be given back.
I know I know, I said I’d try to have the strength to hold it for a silver rally but it’s my money and now it’s my profit. I hope to revisit the trade again because seldom do these impulsive declines just stop in their tracks. Silver remains suspect for the very short-term below the moving averages.
No, not against the SPY, which has not bounced as far as hoped. But against silver… errr that is against the 3X bearish silver ETF, DSLV. It’s a hyper long in silver. Crazy, I know. But the 19.50 to 19.75 support target was there for a reason, which was to see the punishment of the hype surrounding an over bought silver-gold ratio. That is all cured now.
Silver is coming along nicely toward the support zone as SLV sports a Falling Wedge down to that area. There’s no rule that says the gap has to fill, especially since it broke SLV above the moving averages on volume, but it wouldn’t hurt either.
Finally, we have seen the obvious (what most people will now take note of) kickoff to a short-term correction in the precious metals. Depending on the fundamental picture, we can plan on taking advantage of a buying opportunity as we have been noting over last couple of weeks.
Gold got blown up in 2 days with respect to the short-term rally. Watch for gold to bottom before silver as we likely transition into a phase of gold leadership over silver. Key support is from the 1300 down to 1270.
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.
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.
As the silver CoT report data systematically, almost robotically degraded into the September 2012 top (despite the seemingly bullish coming of QE3) NFTRH used to ask week after week “Who are those guys?” doing its best Butch Cassidy while evaluating the gathering short interest.
Below is the CoT graph from NFTRH 203 dated September 9, 2012. Week after week ‘those guys’ were ganging up on silver and we all know what soon happened; a harsh bear market down leg for the precious metals.