Gold Ratios

I am not bullish on gold because I am a 'go gold!' booster. I am bullish on gold because I am bullish on gold - for reasons belabored over the last four years - and bearish on fiat currency (debt) created out of thin air. I am not bullish on "resources" as if gold is one of "the metals" in the commodity resource complex. I would rather not be a gold bull because that would mean I could be bullish on the progress of a sound financial system underpinning great social and technological progress by mankind. But that is not to be, at least not at this time. Here is a check up on gold measured in other assets as we grind forward... painfully but deliberately.

Click to enlarge

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Hang in there gold bugz... Time's a comin'!

XAU

I am bullish. You are entitled to be whatever you are but here is my bullish case... Miners' costs are dropping here and their product is hanging in relatively well. I am filling my bag holder bag up on down days a little at a time and awaiting a potential flush down to 110 (and corresponding 250-270 area on HUI) with the comfort that the fundamentals continue to improve. I have wanted oil down all these months. I have wanted copper down, aluminum down, the stock market down and yield spreads up. I have wanted fear up. As a gold stock trader you are used to emotion and fear always riding shot gun. Fundamentals are coming in line for the metal (monetary) and for the miners (potential expanded profit margins). Now, looking at this chart I see nothing to fear but perhaps 15%-18% downside near to intermediate term and a hell of a lot more than that potentially on the upside. The CoT reports are painting a picture of hedge funds and small specs continuing to take it on the chin while playing into the hands of the commercials. Then there's this chart; bullish in the big picture. Sentiment sucks and a deflation scare is in progress. Timing is tough to nail down, but in my opinion this is one of those rare times where you can feel like you're doing a Buffet and buying value before it becomes readily apparent. Again, fade at will since this is just the currently battered stance of some blogger who you do not pay for advice.

Edit (3:51) PS... I used to subscribe to Bob Hoye's Institutional Advisors, so you can see where much of my fundamental view comes from. I just found out the other day that they post their analysis here with about a week or so delay. Hoye's 'Pivotal Events' should make the case quite well. Just an fyi if you're interested.

Interesting read- Ed Bugos

On gold & the dollar

Dangerous condition...

Despite the talk of economic contraction, Fed bail-outs and the decline in short term interest rates, long term rates maintain a bullish stance after having double bottomed. Combined with the pressures on the short end, that is a most noxious environment for those who would cast their investments in a conventional stock & bond manner. Can this be negated with rates over all time frames breaking downward, eventually spawning a new bullish (inflationary) nirvana? Yes, it's happened before. But the long bond has not done so yet and we are left to wonder how much debt is enough debt for the massive global bond market?

Dragging out the FrankenTheme again...

Bud & Lou Meet FrankenMarket

Gold-Silver Ratio

Edit (6:00) CoT reports continue to improve. They are posted @ biiwii.com/analysis.htm. Wash, rinse, repeat I guess; large specs dump and commercials cover.

So, You Wanna be Bearish? 4 More Charts...

Futures rise on Countrywide-led confidence... Pay no attention to the man behind the curtain! Move along, nothing to see here.





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A Miser's Miser

This is off topic but for some strange reason I find it relevant. Especially for those of us who are "fascinated by finance" as Hetty Green was. The picture in the article wins creepy photo of the year honors in my book.

A Miser's Miser by Jeffrey Tucker

This from reader Claude...

Gary, I wonder if you would like to adorn your blog with this Chart of the Day. It could turn out to be an interesting anniversary soon.

Claude

4 Charts

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biiwii.blogspot.com

HUI - Gold Ratio

As noted, I am now the dreaded investor (miners & GLD) as I find trading against improving fundamentals to be illogical. Strict traders might wait until this ratio repairs itself. I have some cash and have not yet liquidated the SHV (3 mo. t-bill fund) but I refuse to buy anything on up days. For me it is buy the agony and wait it out. And no, I am not enjoying this but to these eyes anyway, it looks like major opportunity in the big picture.

$IRX (3 mo. t-bills)

You know, I don't want to scare anybody, but something is really broken here.

New poll

Some relevant charts

Off to get a root canal

This will be preferable to what has transpired thus far. Good luck and stay safe out there.

And now for what's really important - OT

My sister's two kids have type 1 diabetes and this video she sent me says it all. This is not the result of lifestyle like type 2 can be. These kids are innocent and the disease chooses them, not the other way around.

As another nail gets hammered into the coffin of the short term bullish scenario

We note that a gap remains unfilled just below here. Grasping at straws? Maybe, but I would rather have that gap taken care of now that we're blown up anyway. Edit (10:19) Capitulation? I switched from trader to accumulator on weakness and am not changing that tact except that now I am an accumulator on outright decimation. Anything I have sold in the last few days is in service to trading UP quality-wise. I want to know every miner I hold well and juxtapose that against the big picture fundamental background for gold. Oh and btw, gap filled.

Yield spread weekly & monthly

This monkey wrench in the works has been noted previously and given markets' tendency to eventually come to equilibrium, this could be why we are forced to have patience now at a time when the gold sector 'should' be rising. We weren't complaining when it exploded higher at a time it technically 'shouldn't' have. If current levels on the HUI & XAU are lost, unfortunately the long standing major support in the HUI 250-275 range comes into play. But first things first, weekly charts show what has been strong support here.

Ben?

Is Dr. Bernanke sitting back sipping cognac in the rarefied environs of academia or is he here sweating this out along with the rest of us? We may know soon.

And then there's this pretty picture...

Do you think somebody's worried about the financial system?

Euro

Updated USD & Yen weekly

Perhaps my book is shading conclusions here but both the USD & Yen appear to be getting to a stage where they will hit short term tops at the least. These have been the two most despised currencies for years now and have been major drivers in the debt & liquidity confidence game that is now threatened. This week the Fed is thus far playing chicken with the market; a market whose temperament looks a lot like Cramer's now famous wig out. Each currency can blow off higher here given the emotionalism and need for claims on 'cash', but neither has either of these currencies proven anything substantial technically. We should remember that it will be easier for the Fed to don its hero's cape with the dollar as far above the critical 78-80 range as possible. The dollar is the Fed's product after all. Caveat: In a debt leveraged global market where first Fed policy and then all manner of Ponzied up speculation ('innovative' mortgage products, levered hedge funds, 'private' [ie borrowed] equity, etc.) have ruled for years, will the unwinding and rush for 'cash' simply end quietly? Unlikely.

Disinformation machine switched on

Despite Peter Schiff's gallant try to be heard through the editing, this well massaged article comes off as the usual dis-info that the experienced gold trader is used to. Where can I gits me some a dem treasuries!!?? ;-) Edit (4:02) Adding USD chart which, after today is starting to get over bought on some indicators while remaining in the down trend and bumping up against the initial resistance noted a few weeks ago (near the 50dma). Of course, maybe I am just a bag holder trying to justify to himself why he continues to hold and buy fallen angels. But fundamental shifts are at hand and that ain't no justification. Back to the chart, considering the extremes that many markets are going to before reversals, we cannot rule out a move to 82+ and the top of the wedge. But what is this other than short term noise as money flies out of assets in the initial shock of a post-boom?

Gold

It is interesting to watch the various CB's come out with their respective CONfidence-speak, the latest being the Chinese who are apparently happy to hold all those USD's (and all those IOU's) from debt laden consumer nation. It is quite awesome to watch the ECB and the Fed work their magic as European markets and the venerable Dow Jones must not be allowed to go down to inconveniently bearish levels. Meanwhile the barbarous relic just sits there, waiting for these increasingly hazardous machinations to blow a tire in a pot hole. Gold's fundamentals are coming in all around, but patience is the watch word... as always.

Disgusting GRS blow up aside

The script appears to be kicking in. Apparently yesterday's Huey decoupling at end of day was a sneaky preview!

Dow & Huey on 5 minute chart

After days of the gold miners being stuck in the pig's wake, today may have given an inkling that these stocks - which should be thriving on the fear and loathing created by the now burnished (in the public's conscious) 'subprime' and hedge fund mess - showed a bit of a penchant for getting off the ship of fools toward the end of the day. A large segment of the commodity bull herd (hedgies, etc.) clung to gold among its 'hard asset' holdings and that is why we are getting clobbered. But sooner or later the risk aversion, contracting credit and flights toward quality will result in the appreciation of that which is no one's liability, pays no interest and has kept its value over the centuries, no? I don't want to read too much into one afternoon's trading activity, but this decoupling would be a good signal when it does happen.

Some gold ratio charts pointing to global downturn...

Vacation ending, now how about the correction?

I have been on vacation for the last 2 weeks (coming home today), sometimes with internet access and sometimes without. I swore I was not going to let market activity impose on family and relaxation time and I didn't. Result? Bagholder. But a willing bagholder because I will continue to pick up gold stocks down here if they want to sell them off. Macro fundamentals are leaning toward favorable for the metal and its miners. Strict traders (like Jack Chan) or those who see gold as just another commodity or market have long since taken risk management steps.

It appears all are bowing down before the Fed (although I have no idea what spurred yesterday's market frenzy - I was offline all day) and people are seeking 'safety' in the government's paper. I still hold a good chunk of that paper in the form of SHV, and will cash that in in favor of the gold sector if the fundamentals stay on track (I can't see them reversing now). The only thing I can see that I don't like is the re-inverted $IRX (3 mo. t-bills).

To Mark & Anthony, I tried to respond to your emails but the client I use on this laptop won't let me for some reason and I don't have time to figure out why.

Big picture HGR...

Angst... that is the enviro that gold shines in. The financial markets are signaling that changes are at hand. Gold & miners have underperformed during the credit and liquidity boom. But the boom was born in the angst of 2000-2002 as our macro financial engineers panicked and gold picked up on it before general commodities and stocks. Gold picked up on it first and it will do so again as the pressure comes down on Dr. Bernankestein to give more juice to the monster he inherited. The miners, being leveraged plays on the metal should love a contraction enviro as their cost drivers decline vs. their product. I find the current HUI-Gold ratio a compelling buy here for those who can stand short term pain as the herd sells for the sake of selling. The caveat is a market crash (which I don't think is likely since so many are on alert for it) would likely throw out the miner babies with the stock market bath water. But can't we all agree that it feels like we are entering a post boom downturn? If so, this is the circumstance that saw the miners lead each leg of gold's initial up phase with a backdrop of economic contraction.

HUI-Gold Ratio again

As tedious as it is watching the gold stocks ebb and flow with the flagging stock market, the charts say not to micro manage and be patient. HUI-Gold is intact and over sold. HUI & XAU are trying to establish support and fundamentals are kicking in for gold & the miners all around. But change doesn't happen over night. I have not only held all positions, but added the agony in the form of GFI & GG calls. What the hell. Ports are suffering here and I could be wrong, but each market participant has got to do what he or she feels is right... and right now I don't think trading is the way to go with all the whipsaw going on. I don't tell readers of the blog what to do. I just tell what I am doing and how I interpret things. Good luck. Edit (6:37) COTs improving: COT Gold Report & COT Silver Report.