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Minyan Mailbag - Gold



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.


As the energy stocks get sqeezed one by one into breakouts, I also have my eye on the gold market too.

Gold Market Snapshot

This is what I am watching in the gold market, using some of the structural, technical, fundamental and psychological metrics:

1) The DXY poking its nose under 84, looking like it "wants" to break higher.

2) Gold's 200DMA and 3-Year uptrend line down near $410-412, and its MACD and RSI turning back down on a daily chart.

3) Gold's 50DMA (Weekly Basis) at 412.50, and solid support at $400-$410 which it may need with its Weekly MACD and RSI not yet to "buy" points and histo's still expanding.

4) From the December top at 455, it looks pretty clear to me that there has been 1 wave down, 2 up, 3 down, and we are now nearing finishing 4 up with wave 5 down to come almost imminently on an Elliot Wave basis. And no, I don't buy the Elliot Wave deflation arguments one bit. I've heard them be bearish on oil and gold for as long as I can remember and look wrong at best, silly at worst, on the deflation thesis.

5) The Amex Gold Bugs Index (HUI) Weekly MACD more developed in its bottoming action than gold itself (under zero and histo's actually contracting).

6) Gold- HUI looks like it's tiring, and one might even argue there is a rising wedge forming. If the resolution of the wedge is down, that would indicate to me that the metal stocks are trying to take the relative strength baton from the metals.

7) Point & Figure work still shows the precious metals sector at 42 on its sector chart; I would like to see this come down closer to 30, which means some of the stocks in the sector have to go down. The only thing I am reasonably confident of is that it won't be the South African miners that have been pummeled from Rand strength. If the dollar rallies, these stocks actually should rebound while some of the other ones finally flip the switch to the dark side. To be clear, I never am a huge liquidator at overbought sector bullish percents given what I believe is the secular accumlation stage. I use them to gauge when to augment my exposure with additional scaled purchases.

8) Structural points are longer-term in nature (triple deficits; stock to commodity cycle) and not terribly helpful at this point other than for general conviction to a gold market thesis.

9) Sentiment-wise the CFTC shows commercials have pared down their short position to 100k contracts. In the right direction, and another swoosh down would likely allow them to cover up more of those short positions. Market timers continue to remain as short as 1999, and many of the gold stocks are drowning in short interest just waiting to be squeezed at the right time.

9) Psychologically, I think it's very likely that Sir Alan chirps out of one mouth to jawbone the dollar higher (even as they keep policy very very accomodative) and that W. talks tough on spending in the State of the Union (not Social Security funding, mind you, but a slashing of social programs) as Sir Alan has clearly told him about DXY 80.

My suspicion is that the media is going to tell everyone that Greenspan and the Fed's rate hikes are dollar bullish, and that gold will likely come down hard on the Comex sometime this week, maybe tomorrow, for all the reasons above. I will be watching all of the above tea leaves very carefully as I assess adding to exposure.

Minyan JB


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