Q: What's Wrong With Gold?!?!
A: Nothing. It's what's wrong with peoples' expectations and perceptions that is the problem.
Once again I'll quote NFTRH 208 from October 14 (that edition and a sample interim update can be reviewed here: Samples), not to be an 'I told you so' wise guy (I didn't definitively tell anybody anything), but rather to highlight how important sentiment is to this sector and also I suppose to toot the horn a little with respect to good risk management.
"Sentiment is over bullish in the precious metals. Public opinion is over bullish, Hulbert's HGNSI is over bullish and the CoT data show that the little and big speculators are over bullish. This should be cleared out before we renew our bullish enthusiasm on a risk vs. reward basis. Broad stock sentiment is in a better state than in the precious metals. It is mostly neutral."
The over bullish sentiment in the precious metals has been ground down to a current state of numbness at best, and full out despair at worst. Actually, it is the reverse; a state of despair is best for a contrarian opportunist.
I have received hate mail over the years for the way I poke at the gold "community" even as I am and have been a gold bull. That is because psychologically, this "community" fancies itself as the battlers of evil, the doers of good; and do you know what? Evil wins some pretty big battles along the way. I want neither NFTRH's subscriber nor myself fighting that battle.
Rather, a calm perspective is required ALL the time; when a market is surging with bullish enthusiasm and when it is in the grips of despair. It is important to look around the next corner and be prepared. It's what they taught me in Boy Scouts and it has never failed me.
Putting lectures aside, let's catch up on gold as measured in a few currencies after a look at the nominal weekly chart.
We have had the support zone in the low 1600s on radar ever since that area formed as a bottom last summer. Add in the weekly EMA 90 (currently 1611) and you can see critical support for nominal gold. There is nothing abnormal happening here technically, although we are in a time when trend followers and rationalizers are coming out of the woodwork to tell you why gold is broken, it's bull market is over, etc.
Weekly MACD has shifted the intermediate trend to up but today up feels like down. See how powerful sentiment is?
I am not going to pretend I like the chart of gold in euros. I do not care for it. But gold will be broken below the weekly EMA 100 and the green dotted line and not until.
The monthly chart of Au in euros is not something I am in love with either. In particular, the toppy shape of MACD is concerning. According to noted currency analyst Ashraf Laidi:
"The recent damage in metals -particularly gold - is a result of the unwinding of this summer's buying gold against euro as a flight to safety from Greek election woes. The unwinding of that long gold/short EUR began to unravel these past few weeks after the dissipation of Eurozone tail risk (Greece debt buybacks, Spain bank bailout and preliminary Banking Union)."
This is as good an explanation as any, and better than most. Again, wearing a tin foil hat and blaming evil entities for your troubles is not the way to manage markets. Is Europe fixed? Move along, pay no attention to that man behind the curtain? Nothing to see here? Gold in euros may have a lot more excess to digest than it does in other currencies. It's a technical thing.
Gold in Yen for instance has been relatively strong in response to a new phase of ultra easy Japanese monetary policy.
Finally, we review gold in USD. There's resistance, there's support and there's an ongoing consolidation within a new trend, which has gone intermediate up by weekly MACD.
Notice how the MACD's are green on every chart above? That means that gold has not yet broken down, although many people's expectations have. This is how markets work. There is only one definite in all of this; it is you against the market and the market makes all the rules.
So what is wrong with gold? Nothing, yet. There is a lot wrong with peoples' perceptions and in many cases, egos, because they choose to fight something that just does not care. Gold is correcting in the face of world wide QE because gold is correcting in the face of world wide QE. Whether it is the unwinding of the euro risk trade or indeed the evil cabal so well documented by the gold "community", gold is correcting.
Make the correction work for, not against you by being prepared at all times, especially those times of sentiment extremes. There is an extreme upcoming that is diametrically opposite to the over bullish one from late September and early October.