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thanks for the link, Gary — good analysis.
Just back from vacation — so catching up on the audio files and message board posts.
FWIW, here are my current thoughts…
As I look through a wide variety of charts for the PM miners, on Friday many of them had prices that exceeded the upper Bollinger Band (this is more than 2 standard deviations from the 20-day moving average). On a short-term basis, this is typical unsustainable and a very logical place for profit taking.
But remember — the move since the beginning of the year was very powerful. There are many mining stocks that were up 50 to 100% or more in the space of a couple of months. In that context, the move down this past couple of days is a blip on the chart.
The stocks are still typically above the 50 and 200 day moving averages. In many cases, you’ve had the 50-averages cross through the 200 day averages. In other words, the burden of proof is now on the bears.
If we start taking out moving averages to the downside, I will be forced to admit to a trend change. But as long as these stocks continue to consolidate sideways as they work off short-term over-bought readings, there is little reason for panic.
The bearish voices on the site continue to identify every bout of profit taking as the top of the move and the resumption of the longer term bear phase. There had been talk earlier that they would use profit taking as a chance to enter positions, but their current analysis belies that.
On a side note, while the Fed will likely continue to taper near term, I don’t expect it to cause any meaningful retreat in gold. The Fed is not tapering because the economy is strengthening — that is just the ‘cover narrative’ to give them some breathing room.
They are tapering because of a growing recognition that the Fed’s balance sheet was growing to an unwieldy size and that QE was losing its effectiveness.
A nightmare scenario for the Fed would be a period of heavy stimulus in which the economy rolls over anyway and goes into recession — as it would prove the ineffectiveness of the QE. By tapering now, the Fed can then resume the QE in the face of growing weakness in the economy — thereby having the appearance of once again riding to the rescue.
They are re-creating the Japanese experience, page by page. Gold’s move higher, in the face of the taper, is a great ‘tell’. It is functioning as an early warning indicator for the stimulus to come.
When the Fed reserves course downstream and launches the mother of all QE — that is when gold will print numbers that most here are waiting for (and extraordinary moves will be made among the mining stocks).
Well thought out and excellent synopsis. Thanks for all your valuable insight and market wisdom!
Interesting post, Eric. I agree on why the Fed is tapering. QE has become somewhat meaningless in that is lacks impact and everyone now knows it. The momentum is gone. No bang for the buck anymore. It is a big leap to assume they will unleash the Mother of all QE’s down the road though since the purpose and intent of this current one has already disappointment and led to nothing more than a bloating of the Fed balance sheet. I suspect they will come up with something new perhaps related to modifying the rates paid on reserves or more direct infusions into the economy. Infrastructure offers a lot of potential because the assets that will go on the books should grow in value.
Birdman….I agree with ERIC I believe there will be more QE further down the road , these people will go to any length to keep this thing within their power……JMO
I would argue that it’s done exactly what they wanted it to do. Namely inflate asset prices. It’s hardly slowing down. It’s going ballistic.
I agree with Marc’s comment.
Where did you go on vacation?
Thank you for your kind words. We took a cruise to celebrate my wife’s birthday. They had CNBC on their television offerings, so I could sneak a peak at the end of the day to see how gold did. Turned in some pretty nice days while I was gone — I should go away more often! :o)
I hope your seat belts are still fastened.
IMHO there are two possible scenarios that could play out.
The first is that IF gold can rally the remainder of today and close at the highs than the two day attack we just witnessed was a failed attempt to break gold
The second is that IF we get another third day take down tomorrow it CANNOT go below $1340, not even inter day.
Both outcomes would be ok for gold.
The dollar is clawing its way back to .80 James and that looks to be the sentiment heading into the FOMC so my bet is gold continues to fall. The Euro is getting repelled at the 139.5 mark too but I can’t really call this for some reason. Above 1.40 will probably support gold but it is wait and see.
I think the fall in gold will stop for the time being.
It is beginning to look as if you will be right.
So gold has to go below 1350 and then come back up to rally?
If gold rallies the remainder of today,which it can, and closes near the highs, then I believe this was failed attack on gold and a healthy pullback.
On the other hand if we get another takedown tonight/tomorrow there is still hope if it holds $1340
Thanks, im long in s/t and l/t calls in allied nevada
Bought some russian etf – rsx yesterday but sold out. It is up sharply now. It has fallen hard over several weeks.
Gary you got it!!!!! Your second scenario is playing out right now!!!
Why cause i have zero conviction that we are going into heavy correction here. PERIOD!!! If that was the case then gold is sick and not in bull market. Gold is in bull market! I told ya you will not get serious correction until 1430 or 1550 number. It may stretch all the way to 15xx as if we get short covering beyond 1400 it may take us there. I dismiss any trolls talking about 1200 again. Period!
THAT’S WHATS UP WITH T&A
Fantasy chart. Don’t bank on it.
Gary, Al, Cory, and fellow bloggers. I am on the East Coast and am not able to post during the day all the time. It may be very late in the day for you West Coasters, but I would really like to get your thoughts on the following: I think dollar can still drop to 79.2 support which will help PM go a bit higher. Gold is on support from the 28 Nov high at the 1355-1360 level from which it can pop up. Miners (GDXJ) are sitting on a trend line that intersects 5 Nov, 22 Jan and today which looks like the miners will pop up from this point. GDXJ is formed a nice Doji from which it could reverse and go higher tomorrow. I am still think we are in for some seasonal selling into a June low, but it looks like the miners are set from a technical standpoint to reverse tomorrow for a short term gain. Any other tech guys agree?
Since gold could not rally and take back today’s losses only the last scenario remains;
That being a successful gold of the $1340 level if gold continues to go down tonight and tomorrow.
This will be the first true test of $1340 after the break away run up and it must hold.
So far gold is doing exactly what I wanted it to do. It’s broken the daily cycle trend line. Now as long as it doesn’t break the intermediate trend line we should get a bottom either today or tomorrow.