Here is a quick overview....
The index has managed to avoid breaking down below the key 200 level; however, upside progress has been minimal. Note the series of lower highs indicative of general weakness in the sector.
This week's close pushes it back below the major moving averages that I track with it looking like a new downside push back towards 200 is possible once again. Much will depend on how the Dollar functions next week and what we get coming out of the Fed.
This index has been limping along in a lower grinding pattern for the last 21 months after suffering a devastating collapse two years ago when it failed to clear 525.
For now, the most likely pattern is more of the same grinding sort of trade. Value based buyers are bottom fishing in the sector on ideas that the stocks have been beaten up so severely that they have pretty much factored in the worst. The problem for these shares is that IF GOLD WERE TO LOSE $1200, and not be able to recapture it, many who bought the shares will throw them out fearing another fresh leg lower in the precious metal.
Either this index needs to get above 280 for starters, and preferably close the gap at 300, to turn sentiment or the gold price will have to jump sharply higher from current levels.
By the way, here is a current chart showing the HUI compared to the price of gold in a ratio. For the shares to lead the metal higher, this ratio would need to take out .200 for starters....
Dan- noticing a compression triangle forming on the HUI the last few months on the chart you just posted. Same formation on gold during the same time period which broke below the bottom side of the triangle when gold took out 1270...the coil spring "released" to the downside...
ReplyDeleteIts not just the HUI at risk of falling, most likely its the stock markets and all other assets too that will deflate.
ReplyDeleteThere seems to be so many people that dislike gold that they forget everything will deflate if deflation wins out.
The HUI is most likely going nowhere but down unless the Fed decides to reverse the taper to try and stop the deflation that Dan's charts show.
I do think that all markets including gold will get hammered next week. My feeling is that we will all be in for a bit of a shocker. Yellen probably knows that a storm is brewing and could offer palliatives by staving off interest rate rise speculation, but will she? The Fed has to take a stand some time over this, and cannot go on procrastinating indefinitely, or lose all credibility. If the Fed loses credibility then it can no longer jawbone the markets in the way it wants, and loses a vital stabilizing tool. If they do not veer towards early hikes this session, it may well be the next one. Markets may anticipate this and still fall heavily even if the Fed remains neutral. There may well be opportunities here.
DeleteBarney look when the fed started tapering and the dow performance, sorry its steamed right along.
DeleteGold bug talk said it would collapse but once again they were wrong. Same old same old
Jobs numbers are on par with pre 2008 levels and the mkt is expecting yellen to hold true to rising rates in 2015.
DeleteArmstrong gets info from behind the curtain and has already said US, canadian and UK central banks will start raising rates next year.
Commodities are responding to this, mkts act several months in advance.
Dow and usd dont need support at the moment cause its the only game in town and getting the capital flows.
Get off the gold bug talk and get some reality Prophet, gold bug, Dow bug, bond bug, they are all the same.
DeleteJust depends what market you are cheering for right?
Dow is sure not up 30% this year like last year since taper started, whats the Dow up 5% ?
I think gold is up this year too. Big deal.
Actually until recently I think bonds returned double digits this year. So they are the best investment so far this year.
Were you invested in bonds this year? Wish I was smart enough to buy bonds in January.
Without the Fed it looks like it all deflates is the point.
@ the prophet
DeleteShow me a gold bug who said tapering would crush US stocks. The taper is just like raising interest rates when they are still negative. If the Fed raised rates to 1% tomorrow , there would be a knee jerk word cloud trade to the downside but then it would head back up. Because even at govt CPI, real rates are still negative by 1%. The abcents of downside action in hot money markets after the taper proves that the Fed is behind the curve. Then when they start raising rates to 1 2 and 3% with no downside action is when confidence will erode in the Fed. And then the 33 year long bond bull market ends as money exits bonds. This will kick up money velocity which brings back 70s style inflation. Then comes the currency crisis as the Fed keeps raising rates to try and stop the capital flight. Just like the Asian CBs tried In 1997.
IMHO if it was true deflation everything would be down. Right now it liooks to be primarily commodities and not even all of them.
ReplyDeleteFeeder cattle come to mind. Suspect we are seeing more hedge funds moving to the same side of the trade at once again.
There is inflation and deflation going on right now depending on the market. Deflation is due to lack of demand (or oversupply). Most commodities are down because of lack of demand. With corn and beans it is the bumper crop supply. Cash is going to stocks where investors are chasing yield because of low interest rates. because of this stocks have been inflating. There are a few commodities that are bucking the deflation trend but there are scarcities or perceived scarcities there (cattle, hogs and up until the last week or so palladium)
ReplyDeleteDemand for many commodities like base metals and energy likely won't pick up until spending does. Higher disposable income from higher wages would help. But this will likely only be sparked by more small business investment and expansion. A friendlier business climate would help OR maybe the Fed will try to force the banks to lend more money to small business. Inflation will eventually start somewhere and sometime but it will have to be through scarcity, increased demand, or some serious intervention by the Fed... A long term change in government policies would be the best way to get things moving again. Cut taxes, scale back regulations, open up more areas for energy production in the US to name a few. Anything short of that will be a temporary fix at best (IMHO).