"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, February 10, 2014

Gold Shares Coming to Life

I have been watching the HUI encountering difficulties with that stubborn overhead resistance level near the 225 region for a while now but today it finally managed to punch through. One needs to be suspect about any moves in gold itself if the gold shares fail to confirm it for whether we like it or not, the shares tend to lead the metal, both up and down.

Today's move higher in the HUI is the first real sign that this recent move higher has the potential to be something more than a mere short covering bout that has run its course. If you notice on the chart the price has been oscillating around the 100 day moving average for the last two weeks while it has been locked in a fairly tight range. It wasted no time today in dispatching that key level.

To see this index gap higher above last week's higher on today's open and punch through the top of the resistance band noted, is a sign that there might be some legs to this thing.

From a fundamental perspective, it seems that the austerity programs being instituted by some of these mining companies has convinced some larger investors that management is getting serious about controlling costs ( something that very few of them did during the bullish phase in gold before it entered its recent bearish phase). That has them more comfortable taking a position in the sector for now.

I want to repeat something that I noted last week and again last evening - the commodity sector is showing signs of life - nothing remarkable or particularly wildly bullish, but nonetheless, signs of buying. It does look to me like a combination of multi-year lows across some individual markets, combined with signs of increased demand is bringing value based buying into the sector and giving some bears second thoughts about hanging around a bit too long on the short side of the market. Additionally, crude oil continues to hang around the $100/bbl level. That is in spite of the fact that we had sharply lower heating oil prices today and weakness in unleaded.

That general strength is helping silver although it is still reluctant at this point to press past the $20 level with much gusto. Perhaps copper is acting as a drag?

Back to the HUI however, bulls have passed the first hurtle. The big one will be the 200 day moving average that currently comes in near 235. Note that the ADX is rising and is above the 25 level - that is a sign that the market is now trending and dips in price should as a result, attract some decent buying. I would like to see the index stay above last week's low but it could conceivably drop as low as 200 and be okay as long as the price bounces back up from that level quickly were that to occur. In other words, the bottom in the shares look to be finally in on the daily chart. That bodes well for the metal itself.

The intermediate term weekly chart paints a different picture however. While prices have recovered you can see that from this perspective, the recent move higher does not amount to much considering the extent of the move lower since 2011. Price has not managed to make it even to the 25% Fibonacci retracement level - which by the way happens to correspond nicely to a big gap lower!

The ADX line has indeed turned lower indicating that the downtrend has been halted but the positive directional movement indicator ( +DMI - blue line ) remains below the negative directional movement indicator ( - DMI - red line ). It is however moving upwards and threatening a cross to the upside which would indicate that the bulls have seized temporary control of the sector from the bears.

While the bulls have something to definitely cheer about on the daily chart, the weekly should call for some tempering of the wildly outlandish predictions that are once again coming out of the woodwork as if right on cue again.

This is what is so tragic about the gold market - otherwise fine folks tend to lose their perspective any time this market moves higher and begin throwing out outlandish predictions. One would think that having been proven to have been so grossly wrong in the fairly recent past, that some humility and temperance would be seen but alas, 'tis not the case. After all, you can just claim that you would have been correct had it not been for the manipulation.

Talk about a convenient way to save face when the sad truth is that you just completely misread the market! Good traders have no such wondrous luxury as these newsletter peddlers and other assorted pundits most of whom have a clear conflict of interest and cannot remain objective. I have said it before and will say it again - newsletter peddlers get paid from others and make their living OFF THE MARKET. Good traders get paid for being correct and make their living IN THE MARKET.

That is what we are attempting to do here - teach you to read the markets for yourself and keep your hard-earned money so that you can make your own individual trading/investing decisions without having to shell out money to these ticks which prey on the na├»ve and uninformed. Truth be told, and I realize this will not make me any friends in the newsletter industry, most of these guys could not trade their way out of a wet paper bag if their life depended upon it and thus they are too cowardly to stand on their own two feet and slug it out in the pits with other traders who are perhaps just as sharp as they consider themselves if not sharper. After all, trading is a ZERO SUM game - if you are right you make money. If you are not, someone else takes your money.

I just will never understand why the gold market attracts so many egos. It is unlike any other commodity futures market I have ever encountered over my 25 year commodity trading career.

As said many times here, the most wildly bullish gold bulls had best be careful that they do not get what they are wishing for because life here in this nation will be most miserable and chaotic should it indeed occur. One can prepare for the worst but hope for better things - then again we are now living in a nation where statesmanship which looks to the long-term best interests of the nation has been largely supplanted by short-term political expediency.

As the US drifts further and further into lawlessness and outright hedonism, one wonders how long before such moral decay will impact the financial markets themselves. When both China and Russia, both formerly Communist countries, can now rightly lecture the decadent West about the breakdown of its moral center, we have indeed come full circle have we not?

Let's move on however - Take a look at the GSCI chart. Notice that we had a big push higher last Friday that took the index through both the 100 day moving average and the 200 day moving average.

Do you see what I mean about that quiet buying that has been occurring in the sector? There still remains a very big test for the bulls coming near the zone between 640-645. If they can best this level, then the silver bulls should see their beloved metal kick higher. If the index fails to extend past this level, then silver is going to disappoint. Its fortunes are tied just too closely with the broader commodity sector and the inflation play to move independently of the entire sector.

Here is a bit longer term view of the overall sector. Once again, when viewed from this perspective, the recent move higher is not that spectacular is it? The index has continued to move within a constricting triangle pattern giving no clue as of now which will the triangle will tend to resolve itself as time progresses. The ADX indicator is not much help in a directionless market such as this one for the line is moving lower as one would expect it to do in a non-trending market. Support seems intact near the 600 level but the upside peaks in price continue to make a series of lower highs, not especially comforting if one is looking for the commodity sector to catch fire and embark on an upside tear higher.

One final chart - a weekly of the gold market... Gold has come nearly $100 off the recent low made at the end of last year. Thus far that double bottom has been holding just fine. While it would personally cheer my heart to see old yeller get a handle of "13", the truth is that this market could run as high as $1345- $1350 and still not have broken into a definitive uptrend on this longer term chart. One could make a case that the market could move as high as $1400 and remain in a very broad range trade. This is the reason I am tamping down any tendency to become a full-fledged bull at this point.

As stated earlier, the bulls have done great work and put in a strong effort. They are proving their meddle. That leaves me cautiously optimistic for the short term but still a definite "SHOW ME" on the longer term time frame.

For now, the bulls have some wind at their backs. Let's see what they can do with it.


  1. Thanks for your level headed, objective commentary Dan. Maybe some cheer for the bulls at last.

  2. comex silver stocks crazy high 182.3 mil oz

    comex silver stocks are at the highest they have been since mid 1997, 182,288,852 oz...
    in classical commodities this is what you expect after a test of an all time high, everybody brings out the product...the best cure for high prices is high prices...
    the comex silver stocks being crazy high also implies there is no shortage of silver, there really is no use for the silver, as comex is where you put it when you have nothing to do.

    you can see these kind of numbers after the close goldseek dot com puts out a daily gold seeker report.

    also a seasonal down is approaching for gold and silver.
    blog.stocktradersalmanac dot com/

    silver equities been great, such as SSRI PAAS GPL...bring stops up to below today's low, when the precious metals equities drop it will be fast, as all this has been is just a low volume bounce from a crazy oversold level on tax loss selling.


  3. Dan,

    Forget about charts. Look at wages in this country. Gold is going nowhere this year. Deflation is the story. Emerging markets, precious metals, and deflation. Just waiting this out, like I think you are too!

    1. James Dines says "don't think...look!" The charts tell the story better than what you THINK is the story. Best to go with the flow. (BTW l agree that deflation is winning the battle, but gold and the miners are breaking out, suggesting that l might be wrong.)

  4. Very possible that the XAU and gold could stage a decent rally, but that will only happen if the Dow heads towards 20,000 and the epic economic boom continues.

    What I find hilarious is the plethora of doom and gloom predictions all over the place in the gold arena, as if these guys love cheering for their own demise.

    Best thing the gold bulls could hope for is to see stocks going parabolic and a booming global economy led by emerging markets, which now has a high probability.

    Richard Russell should know that bear markets do not start with names like Tesla, Under Armor, Disney, etc. and other consumer oriented stocks hitting fresh, new, world record highs.

    1. Mark - l agree. We need the velocity of money to pick up, interest rates to rise, and the equity markets to gain traction in order to see continued buying in gold.

      You have mentioned a few time the Dow hitting 20,000 as being a major event. But in terms of percent, a rise from 16,000 to 20,000 is only 25%. If gold rose 25% = $1603; if the HUI rose 25% = 281p.

      There is so much more upside to the PMs, but l guess you know this already :)

  5. Thanks again Dan. The bull calls do come out kinda like rutting season every time gold looks like it wants to run and it does take discipline to not get caught up in it. That and getting faked out a couple of dozen times....hahaha....i'm not certain that it is all ego and talking their book though...for me gold represents maybe our last best chance of leveling the field between small retail and guys like Jamie diamond. as far as not liking the world that will come along with $5000 to $20000 gold it doesn't matter...it's coming whether we like it or not so i don't waste energy hoping for the best. Ive done that in the market while being on the losing side of a trade....i just lost more...hahaha....I think there is one less painful way of getting to these gold prices and thats simply going back to a gold standard.....i remember reading years ago that if the states had to back their paper with their 8000 plus tons the gold would need to be worth something like $26,000 an ounce ....things have changed expotentially since then....for one i don't believe they have 8000 tons and two...they have increased many times the amount of printed dollars since then....
    Change isnt impossible Iceland took a couple of years to get back on their feet once they trashed their banks and banker....what it will take and this is the thing that is growing world wide as demonstrated by a world full of rioting people is the WILL

  6. "newsletter peddlers get paid from others and make their living OFF THE MARKET. Good traders get paid for being correct and make their living IN THE MARKET."

    One of the things that has made me mad, and I am not going to take it anymore. I am tired of newsletter peddlers. Thank you Dan for putting it correctly.

  7. ES has run 74 points in 3 1/2 days. I'd say that the doom and gloomer shorts have suffered a terrible collapse. We never even dropped that much in 10 days during this recent correction.

    Gold shares looking better, some of the "worst of the worst" like HMY have cleared to 4 mo. highs today.

  8. Is this it? Time to mortgage the second house and buy gold and " good gold shares"? That is for those that still have a second house after raking that advice the last time?

    1. Hey, someone wake up the non-stop manipulators in gold!!! They must be blowing coke and chasing Colombian whores. Unreliable young punks!

    2. I suggest they are long enough now manipulators will just enjoy the ride, one more take down possible TBTF will move the market as always to extract maximum returns, By end 2014 Gold bull in control.

  9. This is why you are the pro Dan!

  10. Today was proof positive that buying the dip always works when so many "acclaimed experts", "market gurus", and CNBC pundits all start wailing about a crash once the S & P 500 dips below the 50-day EMA.

    I mean really, somebody needs to call out these guys like Tom DeMark who get paid millions for techincal advice yet they keep getting it wrong over and over with their fantastic predictions of a 1929 style crash.

    The market is nowhere near topping, as consumer names like Fossil after hours are up big again after reporting blowout earnings, and major big cap tech names like GOOG and AAPL are still pushing to new highs.

    I'm simply amazed how so many guys keep claiming the sky is falling when over and over we get evidence of extraordinary strength of the U.S. consumer, even with bad weather.

    At least the massive squeeze going off in emerging markets will create a self reinforcing positive feedback loop for those economies, which will be very positive for gold bullion demand.

    That is why the XAU is now showing signs of strength, anticipating a massive rally in EEM which has been in a huge trading range for over 2 years now and could finally start breaking out.


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