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.
Going into the close, the metals equities were hit hard in line with the rest of the market. The ones that I follow most closely are breaking down from triangles or similar congestion formations, and they appear ready to test the yearly lows. There isn't as much volume (so far) this time around, so at the moment I'm expecting a lower low that creates a decent bottom. However, anything related to precious metals is so wacky now, who really knows.
At the moment, August is setting up as a very weak month for both the euro and gold. Of course, the numbers can change between now and the end of July, but as of now I am very cautious. In addition, I'm having a hard time being as bearish on the USDX as most other folks. I haven't seen much downside pressure in the past couple of weeks despite the rampant bearishness, and I wouldn't rule out a return to the 91-92 area at a minimum.
I left the office this morning for the 5.30am gym and the Amex Gold Bugs Index (HUI) was down a little but nothing worthy of any note. I came back after the close and some of the metals equities have been freaking slaughtered. The silvers like Silver Standard Resources (SSRI:NASD), Pan American Silver (PAAS:NASD), Coeur D'Alene Mines (CDE:NYSE), Hecla Mining Co (HL:NYSE) were all hammered for about 8%. Last I looked, silver didn't move a cent in that period. I know it's illiquid at times but obviously someone wanted out, fast. I will be interested in checking the short sale interest in some of the most effected issues. Maybe I should ditch the gym, if that's what's gonna happen.
I don't know that we will make a new low for equities. Volume as you correctly note is nothing flashy. One point to be aware of is that more and more people are waking up to the "real asset" argument and won't be selling, in fact they will be accumulating more on dips. Stronger hands holding the stocks may cause a lack of liquidity but they also are in for the long haul. I think if we get an equity market drubbing like July 02, and massive fund redemptions occur again, the metals stocks will probably go with the general market, as it did then. There isn't a precious metal stock in the Dow or S&P 500 so these stocks can be slammed to generate liquidity for redemptions, without sending the general equity market lower, which causes more redemption. Metals equities can act as a circuit breaker of sorts (especially when they have been the best performed over the past 3 years or so. It's easier to sell a stock that has doubled, than take a loss on something else).
I think the summer doldrums will see choppy FX trade. I think we will get a dollar rally that will go further than many expect, leading into Sept/Oct. I think we may see higher than your 92 level, in fact the Yen could trade back to 118 and Euro to 1.12ish. But with all the geo-political crap flying, 24 hours is a long time. I'm very dollar bearish in the long term, make no mistake.
As you correctly mention, gold is behaving "whacky". Why? It should be pretty simple if it was just a dollar story. Gold is a political metal. Gold is not behaving traditionally. The answer as to why it is so whacky is in the paper market. People with million ounce "positions" in gold who wouldn't know a bar of the stuff if it jumped up and bit their ar$e. They don't have to "pay for it"... ever. Cash settled gold trades on a notional amount that no one could deliver. One day someone will ask for the gold, not the cash... like Charlie De Gaulle in 1971. Nearly all questions have an answer somewhere in history. The London Gold Pool disaster is the answer to gold's "whacky" behaviour.
I love hearing from readers about their views and the method by which they have come to their views. I can't be watching every possible indicator over every time frame so it's good to hear what some are watching. Stochastics, Tea leaves, chicken guts, fibonacci, prop models, Elliot wave, pure fundamentals...whatever pushes your buttons. Nothing is ever 100% right so I try to keep an open mind and more importantly open ears, although the chicken guts is probably pushing the bounds of decency at present.
Enjoy the day....
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