Precious Metals - General Discussion
Excerpted from the March 28th edition of Notes From the Rabbit Hole
As promised on the blog yesterday, NFTRH26 jumps right into the only sector that stands a reasonable chance of success during the current and ongoing economic contraction to end all contractions. That sector is of course the precious metals and in particular, gold.
The bounce in human spirits that NFTRH has dubbed 'Hope '09' appears to be nicely in progress. But this is actually a resetting of unsustainable negativity as the Obama administration initiates its change; they have changed the Bush/Paulson half measures and mixed messages to the Geithner/Bernanke 'all in' approach. Exponentially more of the same poison (debt) that killed the economy disguised as popular policy, will not work and therefore, as investors and traders our focus on the countercyclical gold miners continues. So too does the focus on gold itself, keeper of the stability of value that it is.
Before moving into technical and fundamental analysis of the gold miners and some of the all important gold-to-asset ratios, why don't we take an objective look at the entire bull market thus far? On the weekly chart we find that the price of gold, in nominal USD did exactly what it is supposed to do in a time of crisis. It protected its owners' wealth by appearing to rise strongly against other assets (really, this was those other assets crashing vs. gold's stability) while maintaining its footing in the face of an impulsively strong USD that benefited, literally from a world full of de-leveraging referred to during the event as 'Armageddon '08' here at NFTRH.
Still, many gold bugs wonder why gold is not going 'to da moon' amidst the horrifying monetary policies being promoted by desperate authorities. With all the 'rah rah sis boom bah!' and flat out promotion that goes on in this sector, that is understandable.
For our own solitude from the noise, we go back to the chart. What we see here is a strong bull market in monetary sanity, but with the degree to which most people are nowhere near 'getting it' as far as the question 'what is and what is not money?' is concerned, this bull market likely has a lot longer and higher to run. For now however, we look for gold to hold the top black line and the all important weekly EMA 75 during any downside during the 'Hope '09' festivities.
A drop to the green line support should be considered as a gift from the money gods to anyone thinking about monetary insurance. Unfortunately, with all the noise that would accompany such a decline, I believe most people would await the 'safer' feeling of buying into rising prices. The price they will pay for comfort may be their status as part of a giant, panicked momentum driven herd all thinking the same thing as gold leaves the $1000 level in its wake for good when the next leg down in human hope arrives.
The lower chart panels measure gold's corrective progress against some of the things that crashed during phase one of the crisis. While I do not want to micromanage this process, some Fib retrace levels are included for reference. Gold is declining against the things that benefit from positive correlation to human spirits and hopes for prosperity.
If you believe as I do that sentiment had to be reset and if you believe as I do that monetary policy is doomed to failure, you likely also believe that 'Hope '09' is sadly just an adjustment on the way to continued economic unraveling and ultimately the end of the current system.
Is it the end of the world? I doubt it. But the new system will be born of monetary education and fiscal sanity. Given the level of monetary and fiscal retardation still embedded in the current system, we can expect that it will take quite a while to be proposed and implemented. But on the way to that would-be nirvana, gold, the ancient money, will play a central role, whether it officially back bones the new system or not.