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Gold – A Rally No-One Really Believes In
Submitted by Pater Tenebrarum via Acting-Man.com,
A Few Remarks on the Technical Situation
In our last update on gold and gold stocks we discussed a simple method to identify whether or not an upturn was likely to morph into a longer term rally or not, based on market behavior near past major lows. This particular test is obviously still ahead of us.
In the meantime, the short term correction we suspected would soon begin has indeed commenced (there was one more strong up day right after the above mentioned post). As we pointed out, with gold approaching its 200-day moving average (silver had already reached it), one had to expect a pullback regardless of what the medium to longer term trend would eventually turn out to be.

Here is a look at both metals:
Gold runs into its 200 day ma and pauses. This is no surprise, as this moving average has contained a great many previous rally attempts – three in the past year alone, including the failed breakout attempt in January – click to enlarge.
Silver is similarly hampered by its 200-dma, at least in the short term – click to enlarge.
Both metals have become slightly overbought as well, so traders are evidently reluctant to jump aboard at this particular juncture. There is however some statistical evidence that gold’s recent close above the 200-day moving average may be more meaningful this time. As Jason Goepfert of sentimentrader reports:
“Gold has broken above its 200-day average for the first time in 100 days once again. That’s the third time in the past five years. It has had multiple failed breakouts after being below its 200-day average for more than 100 days several times in the past 40 years. The third time it managed to break above its average coincided with sustained rallies during the next 1-3 years. One caveat (besides the small sample size) is that there were a few times that it *just missed* the 100-day cutoff, which would have preceded the long term bottoms by several months at least.
Obviously this statistic has to be taken with a grain of salt given Mr. Goepfert’s reservations noted above, but we wanted to mention it for the sake of completeness. It is clear though that pullbacks can also be quite informative, so we now have an opportunity to get a better handle on the nature of the recent rally.
If a trend change is underway, then pullbacks in gold stocks should remain relatively contained, either by a typical Fibonacci retracement level or the 50-day moving average (such as e.g. happened in 2000-2001). Naturally, gold stocks will still tend to magnify the moves in gold itself.
Below is a daily chart of the HUI and the HUI-gold ratio with a Fibonacci grid between the most recent low and high drawn in to show potential retracement levels. We’re not sure if it makes much sense to apply Fibonacci retracement levels to a ratio chart, but it didn’t cost us anything to add them.
The HUI and the HUI-gold ratio with Fibonacci retracement levels. The HUI’s 50-day moving average will soon coincide with the 50% retracement level and the 38% level shortly thereafter. As noted in the annotations, it would be ideal if the RSI could stay above the 40-50 area (this incidentally applies to the metals as well). In bullish trends this level is rarely undercut – click to enlarge.
This provides us with an initial “if-then” set-up: pullbacks should not violate the now rising 50 dma – if they do, then no major trend change is in the works yet. On the other hand, a rally above the high of Wednesday last week (just above the 139 level) would represent evidence that the probability of a larger-scale trend change has increased further.
There is one more technical observation we want to share. Something has changed in the behavior of junior gold stocks relative to senior gold stocks. Whereas several previous rally attempts were characterized by junior stocks outperforming, this has not been the case this time (hat tip to Dimitri Speck for pointing this out).
Since larger investors (institutions) mainly buy senior producer stocks for liquidity reasons, while speculation in juniors is primarily the preserve of smaller investors, this is actually a small positive sign. It is essentially telling us that while bigger investors are finally seeing some value, many smaller ones have thrown the towel and are regarding the rebound as a chance to get out. Below is a chart of the GDX-GDXJ ratio compared to GDX that illustrates the situation:
GDX-GDXJ ratio an the GDX (when the ratio declines, GDXJ is outperforming and vice-versa). The three rally attempts highlighted by the blue rectangles have seen GDXJ outperforming. The green rectangles show the two most recent rally attempts, which are characterized by more “normal” behavior, as senior producer stocks are now performing better on a relative basis. While the first of these two rally attempts ultimately failed as well, the change in behavior has remained in force – click to enlarge.
Skepticism Remains High
What is very striking to us is that skepticism about the rally remains very high. Below are links to four recent articles (two reflecting non-mainstream opinions and two reflecting typical mainstream opinions, resp. the consensus) which provide anecdotal evidence to this effect.
We should mention that the first article was written by Avi Gilburt, who is the least skeptical of the authors and to our knowledge has a very good record of calling the wiggles of both the bear market since 2011 and the preceding bull market. However, even he is “not prepared to join the bullish bandwagon yet” as he puts it and thinks a low may only be put in place in a few months time. However, there isn’t much of a bandwagon, at least not yet. All we really have are rising prices, which no-one seems to believe will last:
Avi Gilburt’s article is here: This is what it takes to call a bottom in the gold market. We would add to this that even if a low in gold itself should only occur a few months hence, this does not tell us anything about the action in gold stocks, which often (but not always) tend to bottom out well ahead of the metal (sometimes several months ahead, such as in 2000-2001).
The second article is by a non-mainstream analyst we don’t know, but it is firmly focused on the “potential failure of the rally”.
Here are examples illustrating the mainstream opinion. A Reuters survey finds “Gold, silver set for more pain into 2016” according to the mainstream consensus, and analysts interviewed by CNBC tell us that “The gold rally is doomed to fail”.
It is worth dwelling a bit on the mainstream consensus. For a while, the consensus will tend to be correct, but it always – there is not a single historical exception – misses the major turning points.
One only has to think back to the 2009 to 2012 period. It was around 2009 when a few of the major mainstream banks and brokers started to become bullish on gold. By that time, they had completely missed a rally that had been underway for a full ten years already (gold actually bottomed in 1999 at $255, although the rally only really got going in 2001 from the $270 level). “Late to the party” is an understatement.
By 2011, around 5 to 6 months before the peak, virtually all mainstream houses had turned bullish on gold. In hindsight, this was a major warning sign. However, what is interesting in this context is actually how long it took them to change their mind again.
Note here that Wall Street loves to hate gold (there is simply not enough money in it for WS, and gold rallies often spell trouble for the asset classes WS peddles). Surprisingly, almost all the major houses remained bullish throughout 2012, as the gold price increasingly struggled. It took the rather forceful declines of 2013 to turn most of them bearish again. For a while, they were quite right, just as they were right for a while at the tail end of the preceding bull market.
The same will happen after the low, only vice versa: they will remain bearish as the rally begins. The longer they remain bearish in the face of rising prices, the more bullish the situation will be. If that happens, speculators should aim to sell shortly after they all turn bullish again.
Note here that we can of course not yet say with certainty that they won’t remain right for a little while longer. It is worth noting though that stubborn bearishness is also evident in other indicators. In short, skepticism is strong and it is very widespread across a broad range of market participants and observers – in spite of a $110 rally between mid August and mid October.
We have already shown a chart of the Gold optimism index (Optix) last week. Below we take a look at the rankings of both commodity Optixes and currency Optixes. These are an amalgam of the most important sentiment surveys and positioning data.
The numbers show the percentage of traders and observers who are bullish. We have highlighted the positions of the precious metals (platinum is positively hated, while silver has garnered a few more fans, but still not even half of those surveyed are bullish). Even crude oil has more fans than platinum or gold at present. It presumably takes some doing to be even less popular than crude oil at the moment.
We have also highlighted the commodity currencies and the Swiss franc (which similar to gold is widely considered a “safe haven asset”), as well as the “anti-gold” US dollar. No currency has more bulls than the USD – while the commodity currencies are at the very bottom of the list. The colors of the bars indicate whether the Optix indicators have risen or declined compared to previous readings.
Commodity Optixes ranked – traders and market observers are not overly enamored with the precious metals. In the case of platinum and gold they are still outright bearish – click to enlarge.
In the currency Optixes we see a similar theme: the dollar still gets the most love by far (though less than previously), while commodity currencies and the Swissie continue to be hated – click to enlarge.
In short, anecdotal evidence from press reports, survey data and positioning data all agree on one point: very few people believe that the recent rally could actually be for real.
Conclusion
With a pullback underway, we now have a chance to judge its nature – this should soon tell us if the recent rally was just another fluke or if it retains the potential to become a more sustained advance. We will have to analyze the technical evidence as it emerges, but keep in mind that this can be quite tricky.
Meanwhile, the fundamental backdrop is still mixed, but it is definitely more bullish than it was only a few months ago (short term rates have declined again, junk bond spreads have continued to widen, financial stocks have underperformed the broader market, the dollar looks wobbly of late and central bank “credibility” is increasingly under scrutiny).
Lastly, anecdotal and positioning sentiment alike are consistent with a major turn, especially as a quite sizable rally has met with disbelief all around. This does of course not rule out another trip to lower levels, as Mr. Gilburt remarks in his assessment.
Eventually the market requires doubters to change their opinion – ultimately, Gold Optix readings above the 50 level are required to actually confirm a new uptrend. However, it is a good thing when skepticism stays pronounced in the early stages of an advance. The 200-day moving-averages represent the next major hurdles from a technical perspective – if they can be overcome decisively, we would expect to see a surge in optimism (with the mainstream houses likely to stay bearish for a while longer).
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For paper gold, yes.
Given your prognostication powers, what is your one, three, and five year annual return using your gold timing models?
zero or negative - if the system was any good they would keep their mouth shut and make a fortune with it rather than spreading chart porn on ZH.
Bingo!
Or, it's "buy from us..."
Go out and try to buy Physical Gold or Silver and take delivery in short order. NO LIQUIDITY. Silver will take 6-7 weeks and it will come from Australia or Canada. Gold is 2-3 weeks. Gold eagles getting hard to come by.
Paper markets are a rigged casino, you can never win.
Ya know, I hear this "unavailable" thing over and over. Yet I just looked and Apmex is selling 99.99% 1 oz Ag rounds for $0.99 over spot, thats a whopping 6.2%.
Even hundred ounce bars don't get much better than that.
The highest for mailable silver (generic Ag rounds) that I've seen is 12% premium. Perhaps I just look at the wrong time (like when silver plummets and everyone wants to buy that day).
Anyone tried to buy from them and heard "out of stock?"
this article is meaningless drivel. when any significant move through a technical can be cherry picked by the BIS to expand the rehypothecation ratio and smack down the price, technical analysis is pointless, counter intuitive, and lends the market a false veneer of supply/demand price discovery
the depletion of the comex is the only technical
FAIL!!! When the debt levy breaks (like it always does) you will need as much preferred collateral in the new monetary system as you can. Gold is still that prefered collateral, period. There are other physical assets as well.
Sure you don't need insurance if you don't plan on surviving or leaving something to your kids.
Then again we have been farming for four generations and doing quite well. You sound like a very short-term thinker. Fine, to each his own.
FAIL!!!
Try reading the article (that predicts the short term direction of gold prices). Then read my comment about their short term predictions. Let me know if you still don't understand. I don't disagree with much of what you've said but you certainly weren't addressing my original comment.
I don't need insurance becasue my four properties are paid off and I have plenty of other cash and assets with which they can use if need be. Life insurance would be incredibly stupid and not pay nearly as much as what I currently own. Upon death the property is transfered to them and their cost basis is the value at death, not my purchase price. They're all set.
Any more questions or moronic comments?
Municipalities will tax or take whatever you cannot physically defend if they need to. This has been the case over and over. Next to gold, a good tax attorney is very important. All fiat will die, period. During the "transition" possesion will be 100% of the law.
the article is stupid, period.
Do you have a life insurance policy?
If so,,, what is your one, three and five year annual return using your insurance timing models.
No, I don't have life insurance. No need for it.
I'm not sure that there are as many people trying to time the life insurance market as there are trying to time gold and/or stocks but I could be mistaken.
Gold is NOT an investment asshat. It is insurance and still THE preferred collateral.
OR are you suggesting that is isn't? Last time I checked physical is in fact still a tier one asset being held by central banks and governments all around the planet. Perhaps they are doing this just for fun.
LMFAO!!!!
Tell it to the article author who is working speculation (investment) numbers, asshat.
Damn! Some people have ZERO reading comprehension skills.
LMFAO!!!!
Then answer the fucking question fucknut (if you can), is or is not gold the prefferred collateral and asset of central banks? I mean, since your "comprehension" is so good. I don't think it is, I think you are yet another useless paper-pusher. At least you sound like one, I guess I'd be scared too. the article is fucking stupid. what part of NO price discovery don't people understand?
LOL! Yes, I'm too scared. Good job of picking up on that.
God, there are some real morons on ZH...
Hey, at least you admit it, good for you!
According to the last chart central banks could use "cocoa" as collateral.
Charts mean absolutely nothing in a RIGGED market.
The banksters and Fed will continue to rig the paper gold market in order to prop up the US dollar.
What is required is intervention outside the system using physical gold, for example, if the Chinese double the price of gold bullion in the Shanghai physical market None of the Western Central banks have enough physical gold left to reduce the price through sale of bullion.
While I agree that charts should in essence be meaningless in a rigged market, there is no doubt that this is not true. You have people staring at charts all time and making decissions based on what they see.
It is a form of common delusion I guess, and it will of course end when the metal takes the drivers seat.
We have seen this so many times before, yet nobody ever sees it coming!
Madness in numbers.
--Gold, true value.--
I don't understand why people invest so much time doing technical analysis of a completely manipulated paper market.
Even if it wasn't manipulated, the thing is gold doesn't lend itself to technical analysis like many other commodities/currencies. In fact technical analysis is useless to predict gold in theory. Gold should move on fundamental drivers only. However it seems no one wants to do fundamental analysis anymore (you sound like a nut telling people the financial sky is falling), so analysts just cave to chart porn demand and spin a story in the charts that would convince an fx trader to try gold for a quick scalp. Sick really.
exactly. it can't break out of it's 200 DMA because it's being manipulated by fed-funded algos with a political charge to preserve the FRN's purchasing power. these bastards will suppress the price until the day SWIFT overtakes the Western consortium, at which point it will be clear that really the government was actually subsidizing gold purchases by China, Russia and India. How's that for a foreign bailout?
Thank you for saving me the keystrokes. Well put.
Idiots on Twitter saying "it's a great opportunity to short Au!"
< sigh >
Saw an interesting story on attempts to build a Quantum Computer -- big leap forward if they can pull it off -- and lo and behold they're using a lot of gold and brass to build it. Don't know why, I'm no physicist, but interesting nonetheless.
Russia is reported to have bought 34 tons of Gold in September according to Goonberg...ive been tryin to source the story but havent found it yet...
also reported on CNBS....
Can someone please explain to me why we should care about the rally of gold in a currency soon to die a horrible death?
1) "Soon" may be some years yet
2) Many here must buy gold using earnings paid in said currency
just do what u feel is right
i did have gold but got rid of it when it was around 1700-1800 ?? Can't quite remember anymore but did make a profit
don't have any now, but will get back into it eventually...
Horns Up!!!
I have reviewed the Balducci charts and noticed a 50 day inversion that commensed with the third quarter of the moon. When I assessed the inflection near the top of the broader based duck billed slope output I noticed a dimple that didn't retrace the previous cocksure attitude.
Gold and silver will go up eventually.
Funny and true. However a large enough fraction of the market actually trades this stuff so it becomes a self-fulfilling prophesy.
I'm waiting for the astronomical event of the century: When Saturn crosses Uranus, I'll buy again.
Lower USD basis for gold = good for people needing gold for what it's main purpose is.
Gold, silver, and cattle!!!
No votes up or down?
Pricing real money with fake... who da thunk.
Cocoa!
As long as the Washington Post keeps putting out anti gold articles by "in the know" reporters, it's time to keep buying it. As long as the MSM keeps calling it a pet rock, it's time to keep buying it. DYODD. Sure the the charts are painted so what? You think the bankers have soem kind of hold over reality? You think they're god? Even the squid himself will bow dow to the golden calf when the mother of all rallies commences. No one believed in gold in 2003 or 04 and look what happened.
Has anything fundamentally changed since then? ZIRP NIRP QE DEBT? Come on brothers wake up.
You buy it and stash it and later it takes care of you time and time again like it always has to anyone who needs freedom from debt slavery...
Loss in confidence, brought about by:
- A knee-capping event by the Russia/China axis?
- A crisis of confidence domestically, but by what means when it is essentially a 'sealed system'?
- An unexpected derivatives event that sets off a series of shocks?
Which is the most likely...?
Meanwhile the Comex inventories are dwindling. Nobody has audited Fort Knox since the 1950s.
When it's all shipped out, we will see how valid these charts and technicals truly are.
Women should be considered a commodity. Oh, but that's not in good keeping with the times. Back to my mouth-breathing, nascar-following, beer-drinking ways.
Only the ones in shape/thin. The fat ones serve no use.
The local pub I used to go to had two entry doors side by side. I asked the owner to assign one to men and the other to women but make the women's one six inches wide. Exceptions made for skinny chicks with big hooters.
The death of the US$? Come on. Put away your tin foil hat.The dollar isn't going away anytime soon. Its simply crazy talk.
Gold will go up eventually, but the dollar isn't going anywhere. The dollar will still be used throughout your lifetime.
Maybe for wiping oneself.
Only phyzz and I picked up several cheap silver and mining stocks. So far so good on those.
And I sold all of mine over the past two weeks. All Au/Ag/Pt stocks gone bybye. And I'm long dust, one of us will be correct, time will tell.
I thought this was a great article! It made me think so much that I have a headache.
Just food for thought. Ok contrarians, long Rhodium.
Au: $1923 (high) /1175 = Today gold is priced at a ~37% drop from its high.
Silver: $49.95/15.88 = Silver is priced today at a 68% drop from its high.
Platinum: $2253 (3/08)/1017 = Platinum today has dropped 55% from its high.
Palladium: $1100/693 = Palladium has dropped 42% from its high.
Now here’s the most interesting of the precious metals in this comparison:
Rhodium: $9800 (7/08)/761.50 (today on XRH0.L) = Rhodium has dropped 92% from its high.
Maybe low on your lithium? it's 68% off it's high you know!
Bull markets ALWAYS climb a wall of worry...
My charts show hard wood formation building with a slight leakage off the produding head! willy breakout imminent. jeeez,just more chart babble from the self important click seekers. "a rally no one believes in" really,genius,they all called you today to let you know? lol
No matter what you think about Au and Ag, just do yourselves a favor.(no matter how well you THINK" you have it planned.)It hasn't been MONEY for 6000yrs for no reason, and there is a REASON why govenments(except stupid ones like ours), store it, value it.
It always has ALWAYS had intrinisic value has been there,over multiple lifetimes.I have read here correctly many times there have been a VAST amount of items USED AS money.True Dat!,but only two metals have endured to this day,and used as true wealth.
The rally that you don't want to sell? Cue Jim Sinclair please ..
https://youtu.be/u7tTdO6oxUA
looming strategic default by Russia ..
looming oil production to push to $10 / barrel by Russia ..
looming failure to raise debt ceiling by Congress causing default ..
looming gold rally you do not want to sell?
What more is a perfect storm here?
At some point you run out of all your key chess pieces. At the same, you find out you are not very skilled in promoting your pawns ..
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (Read Me First)
How can gold ever rally if the COMEX can continue to sell gold that it doesn't have and nobody gets prosecuted?
This Gold article reminds one of the Republican nomination discussions in the WSJ / FOX News... before Trump kick their ass(es).
THE LOW IS IN.
What else do we need to know?
Oh, I know. If you think gold will soon be on a tear... wait until you see silver! Hi ho silver... up, up and away.
anyone have any models or links as to when the zios like JPM and Goldman are shorting gold?
much appreciated