Just a few observations of the state of the PM stocks. Its been like watching paint dry wondering which way it will eventually break. As you all know I believe we entered phase III last October and we have been in a complext BT since then. I think once this all plays out it will make perfect sense, but the main crux is we are in a super slow motion QE-Keynsian train wreck which is in a slow motion spiral. Remember the word picture I used…it is like whirling around the top of the toilet bowl for a few years. Gravity eventually overcomes the centrifugal force instilled by QE and eventually it falls on its own weight and goes down the bowl.
That’s what we have been doing and we are about half way down the bowl now. The second half by the way gets alot more exciting. The gold stock bull market kicks off once the deflation grips all sectors in the economy. That’s not that far away, maybe in a year or even less.
Post WWII stocks have been in Nirvana when inflation stays between an inflation band of 1-4%. Whenever we transited outside that percentage band stocks did poorly. We are approaching the time where we are going to drop below the 1% band. You will want to be out of stocks at that time and in Govt bonds and eventually gold stocks then.
So once we get phase III behind us it will be all systems go.
State of the gold market: Rambus has pointed out that we should be watching the double hump for support. It has been marginally violated now, but not enough to provide downside confirmation. The clues to me are bearish, however not certain. Gold has refused to breakdown below its previous low despite the USD being strong and going to new highs. That’s a bullish statement for gold actually, so we don’t know yet. Over the next few days if we get a stronger USD and a successful test of the lows in gold I will cover my short, but for now I am staying short.
Here are some longer term concept charts that still argue for the bearish case. First the relation between gold and silver. In a bull market silver should outperform gold… simply stated no evidence of it doing it here, or likelihood.
And that concept that everyone is always stating that stocks lead the metal….well this points down
Now onto some of today’s action. First focus on the interplay between the price and the moving averages (50 & 200 DMA). I think that is today’s market clue. On many of these issues the price action just didn’t even care that the MA was there. It offered no support. That is the market talking to us. First the 4 royalties. These stocks are supposed to take out the operational risk and reflect more the state of the bullion. What are they telling us….again look at the moving averages:
Now onto the Majors…..again the moving averages!
And a few silvers. Sil looks ugly and look at CDE. This used to be the whipping boy saddled with the most stupidest management team out there, but everything has now changed. They are the turn around play IMO and their stock has started to reflect this, however look how the 50DMA chewed this up and spit it right out. And Fortuna just gave up its 200 DMA