Precious Metals: Wash, Rinse…

April 19, 2019

Before the promotional corners of the gold community start with the conspiracies, excuse making and general placing of blame everywhere but where it belongs, let’s simply note that this correction was indicated (by sentiment) as far back as February 22nd. On that day I made a post quoting three anonymous sources within the community, firing up the troops to be hyper bullish… as in a gold price of $1400 promptly before a “parabolic slingshot” on the way to $3000 off of a “gargantuan pattern” (that had not even appeared yet and was but a figment of a fertile imagination).

The quotes and targets were compliments of different sources melded together for a mouthwatering smorgasbord of greed for gold bugs to sink their teeth into. It was a classic contrary indicator as the sector was touted far and wide while already overbought and obviously bullish. It was confirmation of the greediest hopes of the greediest and/or newest, most naive gold bugs (putting aside for a minute that gold itself is not a price play, but a value play within the leverage-rigged casino called the financial markets).

We are all wrong at times. My point here is that you can state your case humbly, be wrong and try to do better next time or you can state your case in an emotionally charged manner, suck in some newbies, be wrong and then do it the hell again!… and again… and again. That is what I have observed over nearly 20 years of closely watching the sector. The spin cycle repeats over and over because new marks are being minted in the markets all the time.

Moving on from my personal negativity to some analysis, let’s gauge where the sector stands now as the dust (no pun intended but while I covered a short against GLD today I still hold the gold miner bear fund DUST against some long positions in key miners I did not want to sell) settles on yet another wrecked bull phase.

The gold short was covered despite further downside potential in the metal. But it is coming a time again to prepare to be a buyer, not a bear.

From the February high to today’s low HUI has done a lot of good work tamping down the sentiment backdrop (120 min. chart below). Sentiment is getting cleaned up and that has been necessary since February.

But gold sector cleanups tend to end in climatic events. I don’t think we’ve seen one of those yet.

Today Huey dropped through initial support on the daily chart and NFTRH has been tracking the SMA 200 (157) as a key support area. Below that has been the possibility of a gap fill at another lateral support area. Note that even there HUI would be in a ‘higher low’ posture, which is important.

But for the exercise of being a buyer to be ultimately worth it, the macro and sector fundamentals – which have been under much stress since the Christmas Eve massacre in stocks signaled the bottom of the correction in risk ‘on’ cyclical markets/assets – will need to bottom and turn up once again.

In-depth fundamental discussion is beyond the scope of this article so we’ll spare the charts, but Gold/CRB, Gold/GYX, Gold/Oil, Gold/SPX, Gold/DJW (world) and Gold/XLB are still consolidating in 2019 downtrends while other fundamental indicators like the 10yr-2yr yield curve have not budged (e.g. the yield curve has not yet turned to steepening). The Fed rolling over and posturing itself dovish is not enough.

There are a lot of balls up in the air. Will the macro fail back into deflation? Will it evolve into a big macro inflation trade? A steepening yield curve could go with either of those scenarios and the precious metals could do well in either of those scenarios. The one thing gold bugs do not want to see is a return of Goldilocks. Her name has appeared in NFTRH over the last several weeks. I don’t think she’s coming back (although the door is open), but it will take open minds (a tough ask in the gold community, I grant you) to effectively gauge a buying opportunity worth taking.

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Gary Tanashian of biiwii.com successfully owned and operated a progressive medical component manufacturing company for 21 years, keeping the company’s fundamentals in alignment with global economic realities through various economic cycles.  The natural progression from this experience is an understanding of and appreciation for global macro-economics as it relates to individual markets and sectors.

14 karat gold is 58.5% pure gold