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Weak

Precious Metals Grind Out a New Trend

Gold is Monetary Value

We preface the post with a statement that has not changed since I began public writing nearly 10 years ago:  Gold is not about price; gold is about value.  This point was hammered home to me 11 years ago by a person who had much influence upon my viewpoint toward the financial system and its various diseased components at a time when I was ready to listen and understand.

So whether we are talking about 2013′s epic price crash or a new bull trend in 2014, the simple fact is that physical gold itself is a store of monetary value.  That applied last year as the value was marked down by greed and confidence and it will apply this year as it is marked up in the face of a likely unwinding of those things.  Humans, what funny and hyper kinetic animals.

Precious Metals Speculation

Ah, but this post is about the fun part, the speculative part where we humans can make gains from gaming the simple store of value and its wild little brother, silver.  As asset market speculators we care about prices, right?  How about the share prices of the completely blown to bits miners that dig the stuff out of the ground?

There is a reason we put so much effort (i.e. risk management) into not letting the declines of the last 2+ years hurt us, and that reason was to be fully intact for when it is time to speculate.  Now, a bottoming process has been ongoing since last spring, believe it or not.

hui

The Inverted Head & Shoulders scenario may or may not be the ultimate outcome of the weekly chart above, but NFTRH has been operating to its potential for months now as the grind in gold stocks has well, ground on.  In fact, a grinding bottom would provide a better basis or platform for the rally (or baby cyclical bull) than the vertical thing that failed in 2012 off a ‘W’ bottom attempt.

Weekly MACD triggered up back in the summer and when it was confirmed by the slower TRIX we had our two most important bigger picture bottoming signals.  These have kept us in the gold stocks game – whether substantially positioned or ready to be – since the TRIX signal.  But again, the bottoming process has been a real grinder for the better part of a year now.  Time flies when you’re having fun!

Not… this bottom has been grinding peoples’ nerves every step of the way and as noted to NFTRH subscribers along the way, this is a good thing.  A grinding, painful and highly doubted bottom is a better bottom.

But it takes a new daily trend to even begin moving from a potential bull phase to an actual bull phase.  Several weeks ago NFTRH was noting that a bull signal (for a rally at least) would be indicated by a rise above the 50 day moving averages in tandem with MACD going green (0+).  While I personally positioned during the false breakdown below 200, it was advised in NFTRH that conservative investors and traders might wish to wait for the above noted signals.  Check.

As to whether this is a new cyclical bull market or just a rally, the weekly chart above will eventually decide that question.  There is no need to define it yet, because a bull phase is a bull phase as far as speculators are concerned.  If it is a bull market, there will be plenty of time for late comers to jump in and mark it up later.

hui.daily

As for staying aboard the rally in the meantime, here is where the fundamentals will come into play, joining the technicals.  During much of 2013 we were treated to much railing from within the gold ‘community’ that gold’s fundamentals had never been better.  But in reality, gold’s fundamentals as NFTRH views them – which are beyond the scope of this post (ref: Gold Mining is Counter Cyclical), but are definitely not what you read in the mainstream financial media or hear touted by certain gold bug analyses – degraded consistently in 2013.

It can be argued (I for one have argued it) that these fundamentals were jimmied and rigged by all too cynical policy making, but just because something is rigged, you as a speculator, do not stand in front of it.  In fact, as a speculator you put your dogma on a leash* and trade what is, not what your inner most convictions tell you should be.  In other words, trade your brain not your heart.

Bottom Line

The daily trend in the precious metals and in particular gold and silver stocks, which have led the metals as we would like to see in a real bull phase, has turned up.  A new bull market is still a ways from being indicated, but for now we’ll take a rally and realize that with the bearishness of the last 2+ years and the grind that the recent bottoming activity has been, a new cyclical bull market could also be in play.

Do not listen to the hype.  The macro fundamentals have begun to improve for the gold sector and this will need to continue.  NFTRH will manage these fundamentals every step of the way, as well as keep a running tab on the technicals.  There will be hysterical rises and challenging declines going forward, but sector fundamentals and support parameters will successfully guide us.

Our big picture theme for 2014 has been a ‘macro pivot’ away from the trends of the last couple of years.  Give the affordable NFTRH (weekly report and detailed ‘in-week’ updates) a try and you will likely not be disappointed (see subscribers’ thoughts).  We are as we have been since the service’s launch in 2008, ready to speculate and/or manage risk as the market deems appropriate.

Biiwii.com | Notes From the Rabbit Hole | Free eLetter | Twitter

* Paraphrasing the cool lyric from Boston rock band Volcano Suns “Put that dogma on a leash.”

 

 

Comments

  1. COGS says:

    Didn't result in inflation ? Interesting, I would beg to differ, it's called asset bubble

    http://www.seeitmarket.com/wp-content/uploads/2013/10/ycharts.png

  2. Sparrows345 says:

    After being so horrendously wrong for the past 2.5 years. pundits like these are bound to finally "get it right." Of course that does not mean they will then consent and present a win/loss track record to go along with it.

  3. Anonymole says:

    I agree, the charts are starting to look compelling. But I think the biggest problem with the precious metals right now is if 4+ trillion in QE didn't result in inflation, is inflation even a possibility now? Will the $2T held by the banks ever re-enter the lending markets and boost the velocity of the dollar? Will rising interest rates and bond yields overwhelm the no-inflation trend and force all commodities higher? I suppose, due to the FED being out of bullets, there's no choice but see commodities return to their normal upward path of increased resource consumption.

    • JR says:

      You do realize this is a trading site, right? Technicals rule the day here. Why are you bringing up all of these fundamental factors?

      To quote Jeremy: "trade your brain not your heart."

      But, to answer some of your questions.... There will be no inflation. (Not unless the gov't gets silly crazy like Weimer Germany.) The population is aging and slowing their spending. This is extremely deflationary. The Fed is fighting this natural occurrence. Who wins when nature unleashes hell? Oh, that's right, never man-made stuff. The velocity of the dollar will continue to slow because Americans are getting older. They are done spending on big consumer discretionary items. Period. They are DONE. It does not matter how cheap credit is.

      You should expect commodities to head lower over this cycle. (see deflationary thought above) Gold on the other hand is not a "commodity." It is a store of value. Read that carefully. STORE OF VALUE. The ONLY reason to store value in gold on a long term basis is because 1) you do not trust your government and financial institutions (common in many other countries, but not the US at this time) or 2) other stores of value are realizing negative returns. Let me translate that. If the yield on cash (CDs, money markets) is less than inflation, you are getting negative real returns. What do we have today? BINGO! Nominal returns on cash are less than nominal inflation, i.e. negative real return on cash.

      Storing value in cash in this environment is actually making you poorer every day. Therefore, gold is attractive today as a STORE OF VALUE. This is really gold's only function today; some might say portability/transferability but seriously folks, diamonds and precious stones are better for that type of thing. I can carry $10m worth of diamonds in my pockets, how much does $10m of gold weigh? And, c'mon people it will NEVER be "money" again, but it will probably always be a store of value. (I have more faith that Bitcoin will be "money" in the future than gold will be "money.") As soon as this situation reverses, gold will lose it's luster. Janet Yellen, aka Ms Bernanke, has assured us that this will not happen any time soon. Gold fundamentals intact. No need to worry for the next couple of years.

      Please bear in mind, this is all from a US citizens perspective. I have no thoughts about what the "non-dollar" price of gold will do in different scenarios. Also bear in mind, this is all fundamental BS....what do the technicals say!?!

      Preach on Brother Lutz.

    • Sparrows345 says:

      After all that has happened, you still say something like there is no choice? Isn't that a bit worrisome when there has been absolute devastation in the sector we still have a "sure thing" mentality?

      • Sparrows345 says:

        The Fed was also said to be out of bullets in 1998 during LTCM. Then again of course, before they suddenly trotted out QE. They can pull more bullets out of the hat than David Copperfield, and the sheep will buy into it as usual. One thing they could do if they had to? Flat out buy treasuries and other bonds, the kind of QE they have done has not created velocity, but they certainly could in other ways if the markets forced their hand. Of course as we have seen, it doesn't automatically translate into a jackpot for precious metals and a dollar collapse.

    • Anonymole says:

      JR, good point about the aging of US citizens and their increasingly deflationary impact on the US inflation rate/dollar value/interest rates/etc. As to your reiteration of "store of value" I'd have to propose that the entire market system is now a means to quickly and as predictively as possible, swap one's "store" into whatever "value" one divined was the most promising.

      The FED has ensured that the only game in town for years have been equities. But this is only for US investors. As you say that gold is not a commodity, yet is still linked to the mining industry - just like a commodity, I would point out that all commodities are now vehicles for value speculation - just like gold. And that it will be other countries that become the dominant driving force behind such speculation. So the aging boomers' reduced economic impact may try to deflate the dollar, it's going to be China, India, Indonesia, and hopefully Africa (someday) that really control the path of gold's price.

      I failed, above, to mention this thinking that the FED was actually "in control" when in fact it will be these other countries and their central banks as well as the investment banks that really determine where gold goes.

      I'm reminded of a Dr. Seussian machine covered with buttons and dials and a scrambling Bernanke, now Ma Yellen, frantically working the controls. When he/she pushes in one button, three pop out on the other side. The whole contraption being incomprehensible yet the conductor acting confidently as if he/she new what they were doing. Yeah right!

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