From a post on the HUI at the site last week:
“There are worse things that could happen than filling a gap and scattering the wrong kind of gold bugs back out. Then it would be up to the longer-term charts to do the heavy lifting if the daily does fulfill this downside potential.”
The gap was filled, the top end of the anticipated support zone was reached and indeed, the wrong [i.e. momentum players] kind of gold bugs are scattering back out. The hard sell down on Thursday was very likely due in large part to the selling by traders with a fetish about gold as a geopolitical or terror hedge.
We should continue to tune out these people and while we are at it, tune out the ‘Indian wedding season’ and ‘China demand’ pumpers in favor of real fundamentals like gold’s relationship to commodities and the stock market, the Banking sector’s relationship to the broad market, Junk Bond to Quality credit spreads and US Treasury bond yield relationships.
It’s boring stuff compared to all that demand in China, Modi’s pro-gold regime in India and of course how we are all going to go down the drain amidst war, terror and an age of global conflict unless we have a ‘crisis hedge’. The only terror gold investors should care about is that perpetrated upon paper/digital currencies by global policy makers.
So last week was good in that it blew out those who were hanging on through the 2 month long grind that did indeed turn out to be short-term topping patterns. I don’t mind telling you that my patience was tested by the bullish spirits, especially on up days with Ukraine in the headlines. I did not think it would take 2 months to resolve, but every time the sector looked like it would crack, a new geopolitical flashpoint would show up in the mainstream financial media.
That condition is now being closed out. Taking its place could be a bottom of at least short-term significance (i.e. to a bounce). We have a fundamental backdrop that is not fully formed and a big picture technical backdrop that has degraded in gold and silver and is not proven in the equities. So whether we bounce only, go bullish for an extended rally or even bull market, or (and it’s still on the table folks) fail into the ‘final plunge’ scenario, we are dealing in potentials, not confirmed trends.
Moving on let’s check sector sentiment.
The current hook down in gold’s Optix (Sentimentrader.com’s aggregated Public Opinion data) is correcting recent surges in optimism. This is coming amidst a small positive trend. ‘Uh oh, dumb money is getting positive!’ think contrarians anxiously. But the historical view shows that the Optix rises in the initial stages of a bull market. [Read more...]