Rise, Platform, Blow Off, Correction: Au is Fine

Many chart geeks – myself included – are managing the 1520 to 1530 area as important support for gold, which it is if the ‘price’ of gold is what matters.  And with legions of individuals and funds holding GLD or other forms of paper gold, I suppose it is important.  They are hoping for their paper to be marked up after all, with the idea of making ‘price’ gains in line with the value associated at any given time with the actual monetary metal.

In addition to visual support levels, there are trend lines and moving averages in play as well and this chart has nothing to do with any of these.  In fact, it has not so much to do with technical analysis as it has to do with perspective; a sort of cartoon version of the last several years of agony and ecstasy that has been the gold bug experience.

Exactly one year ago NFTRH was managing a 1.5 year MACD pattern that I was then calling a “platform”.  I did not so much see its ongoing coiling, sideways action as a negative divergence to the consistently rising gold price but rather, as a potential spring board to something potentially dynamic.  BOING… enter the acute phase of the Euro blow up.

On the price chart itself, gold burst upward off of a platform of a different kind.  The yellow shaded oval areas attempt to show how gold has tended to rise, consolidate (platforms) and then burst upward into terminal bull momentum.  Then?… Well, we are currently in a ‘then’ right now.  Don’t over analyze it.  We are in a correction that is the logical result of a blow off.

What else is in play in this summer of discontent?  There is existential damage and plugging of the dykes in Europe, grinding economic deceleration and stagnating money supplies in the US, commodities on the verge of giving in to deflation and silver, copper and crude oil at ‘do or die’ support with regard to their ability to lead a would-be asset market rally.  Assets of all kinds are deeply over sold and the monetary asset, gold is over sold (especially by MACD) in a steady, healthy looking way similar to 2008.

But we are in complicated times with different dynamics than in 2008, with a US Fed ever more sensitive about growing perceptions that it exists for one main reason; to inflate and bail out asset owners and forever dilute the value of the people’s paper money.  A sensitive Fed can be a dangerous Fed to asset owners.  Yet, markets could be due for a continuation of an over sold bounce at the least and indeed, several commodities are showing signs of bottoming.

Steve Saville makes an excellent point that “it’s risky to anticipate QE” (top item: and yet markets may continue to follow gold stocks (HUI/GDM led the May decline and then bottomed and turned up first) through a consolidation of an initial burst upward in the would-be summer rally.  There are several bullish divergences against the bear case in the short term (notably in junk and global bonds).  But the bear is in force as the dominant big picture theme, make no mistake about it.  Deflation is after all, always a threat to unwind the system.

On the short term, support parameters are clear and market players should be following them.  My lean is toward continued broad rally activity off the May lows after the current micro term consolidation finishes up.  But this could change with the turn of a couple strategic indicators.

Back on the barbarous relic, tuning out the Euro and US QE noise, the ‘Fed twists/manipulates the yield curve noise’ (all too much of which was generated by yours truly), the silver, copper and oil at ‘do or die’ support noise, we are left with a chart of gold – the monetary asset that is an anchor in the mud in a sea of noise.  Gold has done great work over the last year in draining out the momentum fueled ‘knee jerks’ and is now under pressure of yield curve manipulation (err, management) and an economy that is not yet bad enough to pull the policy out of officials.

Rise, platform, blow off, correction… nothing has changed.  Gold is in a bull market because the system has not yet changed the way it does its business of routinely substituting debt for actual productive endeavor.  Policy makers play it coy and gold corrects.  It’s just a barometer after all.  In the stock world, the producers of this barometer actually benefit from a deflationary backdrop that sees their unique counter cyclical fundamentals come to the forefront.

Rambling post ends now.  Sign up for the free eLetter to receive pitch-free, spam-free analysis snippets right in your inbox.

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