June 2013 metals preview

Hello friends,


I'm posting sporadically here because I'm not trading the metals currently. No strong reason to be bullish, but then the short side is damn crowded and also fundamentally stupid (even if it has worked for lots of people of late). Betting against gold is not unlike selling life insurance to one of these poor ants:




As far as taking a long position is concerned, I'm not that stupid either. Not yet anyway, as I'd like to see some pretty emphatic evidence that the downtrend has changed.

So, as regular readers know, I've been looking at three-line break charts, which have a damn good track record at telling us when to start paying attention to gold again.



On the virtually "noise-free" monthly gold chart, there finally was a correction large enough to register as a red bar. Interestingly, three-line breaks (as just occurred in May) are generally very good signs of intermediate trend changes (at very least), where at least a few more bars of the same color generally follow. But the gold bull market so far has been so strong that starting after way back in 1999, all we see are singleton red bars. Will that change? I.e. will we complete a month below $1388 before completing a month over $1825? It would seem likely, but then note that there's less to climb presently than there was in 2008 for an upside reversal (see green vertical bars) :

The weekly three-line break chart for gold does a good job capturing how "natural" a strong upside reversal would have appeared back in April (when, as we know, precisely the opposite happened). Look at how weekly downside momentum had stalled at that point, culminating with two red bars of almost zero height. At any rate, the chart is now quite bearish, as a $1580 weekly close is necessary for an upside three-line break. As with the monthly, you'd have to guess there will be a few more red bars before the next upside reversal. But that would entail a weekly close below $1359, which would signify a serious chart violation on the conventional charts and probably lead to a much larger collapse.
But the next few charts are more bullish. I've been closely watching GDXJ, and not only its price. As I mentioned way back, its ratio with the Dow Jones Industrial Average has been a very good indicator of when to buy gold with confidence after a correction. The blue dotted line shows where the ratio now is; quite close to what would be an important reversal:
Red bar = good time to buy
And another good indicator, the GDXJ ratio with gold, just had the biggest upside three-line break in its history (see blue vertical bar) on the daily chart. A bullish sign, but of course the mining stocks have been yo-yos.

 Finally, regular readers know I watch nothing more closely than the "Real" interest rate, i.e. the 10-year yield in ounces of gold. Can the ratio really go higher from here? I'd have to see it to believe it. If long bond yields keep going up, gold will have to recover its former trajectory eventually -- I'm feeling pretty confident about that. The US Government can't afford to pay out that much gold to its dupes and enablers.

10 comments:

Kid Dynamite said...

pardon my ignorance - whose head is that in the fly pic?

GM Jenkins said...

And well you can't recognize it, for "God's work" is best done anonymously ;)

Cf, Matthew 6: "Take heed that you do not do your charitable deeds before men, to be seen by them. Do not let your left hand know what your right hand is doing, that your charitable deed may be in secret; and the Free Market will Itself reward you openly."

Kid Dynamite said...

ahhh. lloyd.. got it.

duggo said...

As everyone seems to have abandoned the sailing ship Screwtape Files or are all drunk in the bilges I shall make a comment.

GM quote:-

"As far as taking a long position is concerned, I'm not that stupid either. Not yet anyway,"

Duggo reworked quote:-

"Better to be one year early than one minute too late".

As for going "long" this suggests that in the future there will be a "futures" market. Why so confident?

Isn't everyone and their Aunty grabbing the real stuff? Isn't the GLD losing all of it's real stuff.
Won't the black-hole of derivatives suck all of these fancy double-dealing trickeries down through the event-horizon never to be seen again?

Isn't the Grand Armada Reset sailing to our rescue with the trusty Captain FOFOA on the good ship Freegold ?

S Roche said...

Still happily day trading gold and scalping, for those that care. For anyone looking for detailed data and information on precious metals I thoroughly recommend Sharelynx, a modest subscription and a treasure-trove awaits.

I do not know why anyone thinks that the physical market will decouple from the "paper" market, ie London and the Comex. Do people honestly think that "the Cartel" will fold its tent and go silently into the night? Rather than profit? I fully expect London to be AM and PM Fixing at $10,000 or any figure you care to name, and Comex Futures too. Why does anyone think otherwise, other than some retribution-ist dogma?

I don't think the main players plan to miss their own show.

SugarLover said...

@Duggo,

I enjoy your comments, tongue-in-cheek as they are.

The STF boys are more into trading I feel, no harm in that at the moment.

I suspect one more qiuck washout down for gold to the $1200s, if for no other reason than to get 'the clan' all over-excited again.

The 'window' year is whizzing by pretty quickly, and I'm certainly feeling that this is nothing more than a cyclical bear market within a secular bull for gold. $3,000+ by 2015 I reckon.

Give it another 3-5 years for things to reach the 'day of reckoning'. Not fluffy freegold of course, just gold used as a reserve for settlement.

Now, Nadal or Djokovic, there's a tough choice. I'm favouring Nadal on clay.

duggo said...

@sugarlover
Glad you spotted the T in C. I do try.

Anyway has anyone told the "experts" over at KingWorldNews. They've reached fever pitch and are screaming like a demented Scotty on the Enterprise.

"She canna take it anymore Captain.... She's gonna blow!".

ps. I can't wait 3 to 5 years. I want it NOW.

SugarLover said...

Now would be good for all physical gold owners, me included.

But wait we must.

Cottonbelt said...

@ SR

'thoroughly recommend Sharelynx’ - agreed … would also suggest a guy named J Cooper currently residing @ Minyanville (subscription based) whose Gann-esque / cycle work has been eerily accurate over the years especially big picture inflection points.

GM, thx for ‘three line break’ chart updates … back to waiting patiently for the next phase of the Au/Ag trade to unfold.

mickeyman said...

Can they infect humans too?