Open interest declines are telling us that traders are heading to the exits, both longs and shorts as right now uncertainty seems to be the name of the game.
Tomorrow will provide us with a clue to market direction into next week as we close out the week.
Gold did run down towards the very strong support level noted on the chart at $1680 before running out of sellers. A push back through the $1700 that can remain above that point will be constructive from a technical perspective as it will reinforce the $1680 - $1685 region as good support on the chart.
I would not be the least bit surprised to learn in the future that foreign Central Bank buying of gold is occuring down near these levels.
John Brimelow's excellent Gold Jottings detailed very strong Indian buying of gold overnight. Once again it is the physical market which serves as to remind these paper pushers that there exists life outside of the Comex pits.
One continued fly in the ointment for gold is the pitiful price action of the HUI. At a bare minimum, it will need to close the week ABOVE the 440 level to give any hope of an intermediate term bottom. Seeing that it remains below the various Fibonacci levels shown on the chart, the bears are evidently in solid control of this sector for the time being. Something needs to change on this chart to spook some of them out and convince them to ring the cash register on their tidy profits.
The miners continue to lose ground against the price of gold itself. The ratio of the value of the index compared to the price of the metal is threatening to make a new ELEVEN year low. Keep in mind that this is the CLOSING price for the month so there is yet time to avoid this but the sector needs some help from somewhere.
Dan-
ReplyDeleteI love your analysis, your viewpoints, and your insights.
Regarding to AU/HUI ratio - nobody can pick bottoms just like nobody can pick tops, but I have to think that building a long HUI position here is the prudent action for anyone with an investment horizon measured in years rather than days, and building this position steadily should be a lucrative long term strategy, assuming the following conditions are true:
1) The price of the metal maintains its uptrend on the 180+ day MA's
2) Gold is a Giffen good, whereby demand rises with price.
Gold's price currently is 100% reflective only of physical inventory flow at the margin, so all the stored/hoarded gold out there is little more than stored energy to fuel any large scale selloff in the future...
BUT- the ONLY way to turn the price trend on a Giffen good down is to overwhelm the stock to flow ratio by ramping up the weak current flows with new incoming supply, OR by offering people a 2nd "high yield safe haven" option (as Volcker did in 1980)to trigger and encourage dis-hoarding activity.
Dis-hoarding therefore can't TRIGGER a selloff of this magnitude- it can only add energy to the trend once it is already triggered and well underway.
So, the ONLY rational method/trigger I see for turning down aggregate demand for Gold, and initiating a 1980-style dis-hoarding episode, would be ramping up new ore production.
The other option (raising earned interest rates on fiat currency like Volcker did) will NOT work this time, due to the likelihood that raising rates would concurrently create a deflationary vortex that would make the 30's look like a cake-walk.
I believe that the present bull market in the metal's price is 100% indicative that TPTB are more comfortable with rising Gold prices than they are with a rapid and severe deflationary collapse.
Gold's upward price trend has been 8-10% YOY for nearly a decade - imagine what 10%+ Treasury bond yields would do to the US (and dependent global) economies given current conditions.
Therefore, I firmly believe that the day will come where the public monetary power brokers will be BEGGING the miners to apply their skills in a last ditch attempt to prevent stored/hoarded Gold from completely and thoroughly conquering the global monetary system.
So, you MUST hold a current position in Physical bullion (or- you ABSOLUTELY MUST build one as rapidly as possible), AND at these HUI levels, you should be hedging that physical position with a steady accumulation of mining companies, or mining indices, or PM focused managed mutual funds.
And- to anyone who thinks miners are risky due to the risk of government nationalization, consider that many global government owned companies today are STILL listed on the major stock exchanges.
Even government "owned" companies require liquidity to operate, and in the face of collapsing global fiat currency valuations, a miner's liquidity only comes from investment, or from generating and selling more output. Therefore, even within a government run industry, non-government private shareholders would STILL be necessary to assist in funding capital growth and operations.
The HUI might be bottomed out yet, but it is screaming BUY to me....
"Once again it is the physical market which serves as to remind these paper pushers that there exists life outside of the Comex pits." LOL
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