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 naïve 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.