Gold –  A Short Term Support Level Is Violated

The lower rail of the near term support level in gold we have highlighted a few times before was broken on Friday. It took another huge sale in the futures market inducing a 'stop logic' event that briefly shut down CME trading to produce this support break (for details see this Zerohedge article). We have seen an amazing display of 'slam-dunkery' last week so to speak. First we had Goldman Sachs and virtually every other bank lining up at the same time announcing that gold was going to be a 'slam dunk sale' once the debt ceiling impasse was over with; then we got the first whiffs of an accord (as if that could have been a surprise to anyone!) and before you can say 'what happened',  gold is subjected to huge sales in electronic trading hours when volumes are small, causing 'stop logic events' and happening just at the right points in time to take out widely watched support levels. This was such a perfect dance, it had an almost orchestrated feel to it.

 


 

Gold, dec daily

Gold, December contract, daily – another short term support level falls – click to enlarge.

 


 

 

As can be seen from this chart, the break has so far only been small. Per experience, such small breaks are either reversed immediately (i.e., they turn out to be bear traps entrapping those that sold the support break), or failing that, a decline to the next support level takes place.

Here is a chart annotated by our friend B.A., which shows the flag formation in GLD and below it the equivalent formation in SLV – as well as the two potential head and shoulders necklines (of both the larger inverse and the smaller regular h&s formation) – it is another 'do or die' moment:

 


 

GLD-SLV-B.A

GLD- flag and two potential h&s necklines – below, SLV, which currently diverges positively from GLD – click to enlarge.

 


 

Gold Stocks – Close to Retesting June Low

The HUI's wedge-like decline has continued to extend, one small step at a time:

 


 

HUI-wedge
The HUI is approaching its June low – click to enlarge.

 


 

Although we cannot guarantee that this is going to prove meaningful again, we have noticed something interesting when looking at individual gold stocks with large weightings in the gold stocks indexes. One of the largest producers in the world, and an institutional favorite in the sector is Newmont Mining (NEM). This is now the third time in a row when NEM has made a lower low concurrently with the HUI putting in a slightly higher low:

 


 

NEMThree divergences between NEM and the HUI since July, indicated by the vertical red lines- click to enlarge.

 


 

B.A. has also provided us with an annotated HUI chart, noting that the recent wedge-like decline to retest the June low is very similar to the retest that occurred in 2008. Of course it does not look exactly similar – the 2008 retest was a bit more compressed in terms of time (it is shown further below). However, the basic elements are similar – a sharp pop higher from the low, followed by a slow decay in prices for the retest.

Of course we don't know yet with certainty whether the current action is really a 'retest' or the prelude to another break to still lower levels as B.A. points out below. However, given how close the index is to its June low, we very soon will know:

 


 

HUI-B.AThe HUI daily chart, annotated by B.A.: the slow decay of prices after the initial rally is very similar to what happened in 2008 – click to enlarge.

 


 

Here is the 2008 chart for comparison – the entire 2008 decline's fractal shape was in fact very similar to that of the 2011-2013 decline, with the main difference being that it was more compressed:

 


 

HUI-2008The 2008 wedge did not take as long to form, and volatility was generally higher that it is currently. The 2008 decline was generally more compressed time-wise, but contained very similar fractal shapes as the 2011-2013 decline to date – click to enlarge.

 


 

Lastly, here is an update of the still divergent GDM bullish percent chart which we have also shown in a previous update. At the June low and the preceding short term lows in April and May, zero percent of the stocks in the GDM sported a point & figure buy signal. Currently 26% of them still do, in spite the  decline in the gold stock indexes back to the June low:

 


 

$BPGDMThe GDM bullish percent index and the HUI continue to diverge – click to enlarge.

 


 

Not surprisingly, with gold still $90 above its late June low, the HUI-gold ratio has once again declined to new lows. With that, the ratio of the BGMI to gold (the BGMI is the gold stock index with the longest history) is at a new 72 year low.

 


 

HUI-gold ratioNew lows in the HUI-gold ratio mean that the broader BGMI-gold ratio is at a fresh 72 year low. In other words,  gold stocks overall haven't been this cheap relative to gold since early 1941 – click to enlarge.

 


 

Conclusion and a Few Remarks on Sentiment Data:

We continue to get one 'do or die' moment after another in the charts of gold and gold-related instruments. So far, the outcomes have obviously been bearish every time since the 2011 peak, but at some point that is bound to change, as the fundamental backdrop continues to be gold-friendly (note that not every aspect of the fundamental backdrop is – for instance, the declining federal deficit is probably viewed as a negative by market participants). Often it is precisely at those times when nothing seems capable of turning a market around that surprise changes in trend can and do occur.

Note that gold sentiment remains absolutely dismal. Recently Mark Hulbert's HGNSI (gold newsletter writer sentiment index) stood at minus 20 (meaning gold timers recommended a 20% net short position on average), while the daily sentiment index among gold futures traders (DSI) stood at 9 (all time low: 5).  Bearish sentiment in the sector rarely becomes as extreme as it is at the moment. Of course it has been quite negative for some time now, but the current readings are rather extreme even so.

A major reason why we continue to maintain that the fundamental backdrop remains gold-friendly even though the price action suggests a bear market is still in progress, is that we believe that mainstream analysts are quite mistaken when they assert that it is back to 'business as usual' in the economy. It clearly isn't.

After throwing trillions in newly printed money and deficit spending at the economy, all the authorities have to show for the effort – even using their statistical methodologies, which are designed to prettify the data – is the 'weakest recovery of the post WW2 era'. That alone should tell people that things are far from being 'back to normal' – quite on the contrary, it must be expected that the next downturn could be quite painful indeed. Since the monetary authorities are going to employ every trick in the book to avoid such a renewed downturn, they continue to be set on the doomed course of trying to print us back to prosperity. Sooner or later, the gold market will take note.

 

 

 

Charts by BarCharts, StockCharts, Bigcharts, B.A.


 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

13 Responses to “Gold and Gold Stocks: Broken Supports, Retests and Dismal Sentiment”

  • Calculus:

    Good point No:6. Whoever it is, and it might be a few separate entities, even the Chinese (force it lower to create supply and then buy the supply) is almost certainly making everyone know of their dominance and power.

    As you point out they’re almost telegraphing to any buyers – Buy and it won’t be too long before you regret your decision…

  • No6:

    Interestingly whoever is participating in these PM ‘slam dunks’ seems not to mind this being visible to all, almost like a mafia style warning to market participants.

  • Mark Humphrey:

    The miners are an unhappy lot, but nothing like the SA miners were in the mid seventies, when gold fell from $200 to about $100, and rioting in Sharpesville, SA threatened the miners. Kaffirs got decimated and the End seemed Near. It turned out we were near the end of the bear market.

    Today’s miners decline is modest, even cheerful, by comparison. So we may have further to go on the downside, to make this a gut wrenching correction in the big bull market. And since stocks may have quite a bit further to run on the upside, with Janet Yellen about to take over, gold stocks could continue to hurl themselves off the bridge. For a while.

    Really, this is an opportunity to gradually accumulate more. That sounds sickeningly sweet, I’m sure, to anyone who is really hurting.

  • No6:

    It must be obvious to all by now that coordinated market manipulation is taking place. I think even Doug Casey must be smelling something fishy.
    It defies all logic that at a time of unprecedented currency debasement the PM sector should be tanking. Doesn’t anybody in the Markets have any interest in history?

    The poor Hunt brothers must feel a sense of injustice.

  • Hans:

    Au, should have staged a very strong rally with the
    latest WDC fiasco (I am surprised the MSM is not using
    the word “crisis” as they always do), which failed to
    materialize…

    Intermediate bearish, with salmon declining to the 103 to 107
    levels..

  • Calculus:

    80% of thelong term bulls expect lower prices I would think.

    100% of bears expect lower prices, obviously.

    And probably 90% of innocent bystanders expecting lower prices.

    That puts the overall market’s expectations at about 95%.

    Can negative expectations get anymore extreme? Do markets ever go lower with such sentiment extremes AFTER already losing much value?

    Perhaps that means we’re around the lows and we’re going up!

    • worldend666:

      Jim Rickards suggested the US might sell gold to avoid raising the debt ceiling. I’m sure that is not on any gold bug’s radar yet and it would cause gold to tank massively.

      • For a number of reasons that is not going to happen. The main reason is that both treasury and Fed are convinced that maintaining the gold reserve is an essential component of the dollar’s reserve currency status. In fact, I believe the treasury has even commented on this fairly recently and pointed out that won’t sell its gold under any circumstances ( unfortunately I plain forgot where I read this, so I cannot provide a substantiating reference off the cuff, but it can probably be found by googling).
        Naturally, IF the US treasury were to decide to sell some of its gold, it would be significant psychological short term negative for the market, but the emphasis should be on ‘psychological’ and ‘short term’.

      • HitTheFan:

        It won’t happen.
        But if it did, let’s say they sold 2,000 tonnes.
        Who would buy and how quickly?
        What might they sell/stop buying to take the gold instead?

        Very short-term gold might fall, but almost immediately you would see gold revalued much higher, being ‘back in the game’ again.
        However, it ai’t going to happen, so moot point.

        • worldend666:

          It’s one of these examples where the short term supply/demand effect is counter to the long term significance of the event.

          No doubt gold would whither under the strain of heavy US selling but on the other hand it would be the signal that the US has no bullets left and this is a big positive for gold. My comment was only directed at the short term impact of a US gold sale.

  • jimmyjames:

    We continue to get one ‘do or die’ moment after another in the charts of gold and gold-related instruments. So far, the outcomes have obviously been bearish every time since the 2011 peak, but at some point that is bound to change

    ************

    The bane of my existence-
    Gold with its feral like instincts lies coiled- patiently waiting to shake out any and all fair weather believers-
    There will be a stampede into this play at some point in time in the future- unload your miners into strength and never part with the physical until it tells you to do so-

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Trade War Game On!
      Interesting Times Arrive “Things sure are getting exciting again, ain’t they?”  The remark was made by a colleague on Tuesday morning, as we stepped off the elevator to grab a cup of coffee.   Ancient Chinese curse alert... [PT]   “One moment markets are gorging on financial slop like fat pigs in mud.  The next they’re collectively vomiting on themselves. I’ll tell you one thing.  President Trump’s trade war with China won’t end well.  I mean, come...
  • The Dollar Cancer and the Gold Cure
      The Long Run is Here The dollar is failing. Millions of people can see at least some of the major signs, such as the collapse of interest rates, record high number of people not counted in the workforce, and debt rising from already-unpayable levels at an accelerating rate.   Total US credit market debt has hit a new high of $68.6 trillion at the end of 2017. That's up from $22.3 trillion a mere 20 years ago. It's a fairly good bet this isn't sustainable....
  • US Stock Market: Happy Days Are Here Again? Not so Fast...
      A “Typical” Correction? A Narrative Fail May Be in Store Obviously, assorted crash analogs have by now gone out of the window – we already noted that the market was late if it was to continue to mimic them, as the decline would have had to accelerate in the last week of March to remain in compliance with the “official time table”. Of course crashes are always very low probability events – but there are occasions when they have a higher probability than otherwise, and we will...
  • Rise of the Japanese Androids
      Good Intentions One of the unspoken delights in life is the rich satisfaction that comes with bearing witness to the spectacular failure of an offensive and unjust system. This week served up a lavish plate of delicious appetizers with both a style and refinement that’s ordinarily reserved for a competitive speed eating contest. What a remarkable time to be alive.   It seemed a good idea at first... [PT]   Many thrilling stories of doom and gloom were published...
  • Claudio Grass on Cryptocurrencies and Gold – An X22 Report Interview
       The Global Community is Unhappy With the Monetary System, Change is Coming Our friend Claudio Grass of Precious Metal Advisory Switzerland was recently interviewed by the X22 Report on cryptocurrencies and gold. He offers interesting perspectives on cryptocurrencies, bringing them into context with Hayek's idea of the denationalization of money. The connection is that they have originated in the market and exist in a framework of free competition, with users determining which of them...
  • No Revolution Just Yet - Precious Metals Supply and Demand Report
      Irredeemably Yours... Yuan Stops Rallying at the Wrong Moment The so-called petro-yuan was to revolutionize the world of irredeemable fiat paper currencies. Well, since its launch on March 26 — it has gone down. It was to be an enabler for oil companies who were desperate to sell oil for gold, but could not do so until the yuan oil contract.   After becoming progressively stronger over the past year, it looks as thought the 6.25 level in USDCNY is providing support for the...
  • Flight of the Bricks - Precious Metals Supply and Demand
      The Lighthouse Moves Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick. The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year. A special brick, a government data brick of sorts, labeled...
  • The “Turn of the Month Effect” Exists in 11 of 11 Countries
      A Well Known Seasonal Phenomenon in the US Market – Is There More to It? I already discussed the “turn-of-the-month effect” in a previous issues of Seasonal Insights, see e.g. this report from earlier this year. The term describes the fact that price gains in the stock market tend to cluster around the turn of the month. By contrast, the rest of the time around the middle of the month is typically less profitable for investors.   Due to continual monetary inflation in the...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

The Review Insider

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Diary of a Rogue Economist