Gold, Silver, HUI... from NFTRH57

I am not going to pretend I had the answer. In fact, the excerpt from #57 below tells the story of an analyst not really knowing which way the thing was going to go in the near term.

The best I could definitively tell subscribers was that the risk vs. reward was now (as of last weekend) much better than it was two weeks earlier, when the hype was intense and the pressure was great to be aboard. It turns out to have been a buying opportunity. The HUI chart from #57 is at left.



Precious Metals

[Charts of gold, silver, Gold-HUI ratio, two premium gold stocks and summary omitted]

Let’s look at a weekly chart of gold and silver. Despite the still-bearish CoT data for both gold and silver, as a chart analyst I cannot be bearish. Not unless I wish to impose my will on the charts, and that I do not.

Gold says ho hum to recent events and holds its upside breakout. I would dearly love to see this morph into a false breakout with a break back down into the symmetrical triangle. But each week that gold holds above the highs of early 2008, the technical picture gets stronger. Can technicals do a head fake? They often do, but for now they must be factored, along with fundamental analysis and gut feel.

It occurs to me that there are a lot of people in this world who do not hold this particular insurance policy against official monetary perversion. That is a bid in waiting, and a big reason why I repeat here that gold is not about price. It is about getting access to value in an increasingly valueless monetary system. You expect to pay a premium for insurance. You buy insurance hoping you never need it. The new compelling buy level for gold is around 800. Last year it was 700. One day in the future it may be 1300.

Silver has come down nicely. I am still bearish on silver in relation to gold in the near term, but going strictly by the chart, there is no real damage done in nominal terms. Where I have a problem is in how strongly silver leads to the downside in a deflationary impulse environment. Since I favor that scenario in the short term, I do not like silver in the short term.

But where silver goes, so too do the gold miners. Both have hit what looks like possible short-term support. But again, if the GSR does its job in punishing speculation, then these supports will not hold in all likelihood.

The [above] weekly chart of HUI shows the gold stocks at a logical support point, just like silver. In fact the weekly charts of HUI and silver look wonderfully well aligned. This is why I use bearish silver positions to hedge gold stocks.

HUI has done a lot of good work in relieving the dangerously over bought (too far above EMA 75) condition of two weeks ago. But again, given the macro backdrop I once again repeat that the compelling buy of 250 is still in play. Think it can’t happen? The gold bugs don’t, and it may not. But confidence can turn to terror over night. This sector packs a lot of emotion, and it cuts both ways.

But taking out the noise of what I think I know, the HUI weekly chart shows nothing more than the expected pull back to what should prove a support area – of some kind. And again, I can state most assuredly that the risk vs. reward in the gold miners is now significantly less than when people were champing at the bit to buy two weeks ago.