We'll have to wait to see what happens this month but, since the last six weeks have played out almost precisely as forecast back in October, it's time for me to start implementing my plan to capitalize on what comes next.
As we discussed in yesterday's podcast, the CoT from last Tuesday showed the most bullish gold structure in memory. In fact, Uncle Ted confirmed this late yesterday. His quote:
"In COMEX gold futures, the commercials reduced their total net short position by 16,500 contracts (I guessed more than 10,000) to 12,000 contracts; which I believe is the lowest (most bullish) commercial net short position in more than 12 years."
So, having correctly anticipated the downdraft from the extreme capping event of mid-to-late October, why would we now hesitate to position ourselves to take advantage of the inevitable rebound?
To that end, my pal Jim Comiskey secured for me this morning a "buy-in" at The Casino. In a sense, I stepped to the blackjack table and pulled out nine, crispy hundos and laid them on the table. In exchange for the cash, I was given a "chip" that is a call on February gold. It expires on January 26 and it has a strike price right at the critical $1105 level.
And, in what could be an incredibly fortuitous bit of timing, I received some good news last month. A former employer of mine suddenly offered to cash me out of an old defined benefit plan. They asked if I wanted a check NOW instead of a small, monthly stipend when I turn 65. My reply was "F YES!!" The check arrived last Friday and I've decided that, since it's basically "found money", that I'm going to start accumulating some miners.
Again, the timing couldn't be better because...take a look at this chart of the HUI. Not only is 105 holding again, the RSI is trending higher AND the daily MACD lines have bullishly crossed. If the index can fill and break through the gap on the chart near 113, it's going to look like it's set for a year end and early 2016 rally.
I also just bought my first gold Britannia. Yes, I realize that I paid about $90 over spot...but I don't care. I was able to use my PayPal account, which is where I accumulate all of the "donations" you all so generously share with me and, with where gold is eventually going, overpaying today by $20-30 is of little importance. Additionally, I used JMB but I could also have used Provident, silver.com or GoldenEagle. It was simply JMB's turn.
So, we'll see. Tomorrow brings ADP and Friday is The Big Kahuna...the BLSBS. I expect a lousy number and downward revisions to the previous two months. If I'm wrong...meh, whatever. I'll just use the continued weakness to accumulate some more. Again, I fully expect a rally after the FOMC in two weeks. Whether or not Mother Fellen raises rates will only affect the ferocity with which the rally begins.
Check out this daily gold chart. Could we be seeing the makings of a false breakdown through $1080 and the formation of a reverse H&S with $1065 as the shoulders and $1050 as the head? Maybe. The key will be in seeing if gold can maintain above the $1065 level that had initially acted as support last month and now serves as the "neckline".
And, as discussed yesterday, I'm holding off on silver...for now. Though the CoT is sufficiently "washed", there's still room for one or two more spin cycles. I will almost certainly, however, have some trading positions on before Dec 16 at 2:00 pm. Let's see what this Friday's CoT reveals before making any decisions...I want to see silver crack back above $14.40, too.
Speaking of Mother Fellen, as we head toward the BLSBS and the FOMC, one thing you MUST keep an eye on is the bond market. Just today, the 10-year is down 4 bps to 2.18% and the 30-year Long Bond is down 5 at 2.94%. Just three weeks ago, those yields were 2.36% and 3.12%. That's a pretty big freaking move that NO ONE is talking about. All the while, the 2-year note has moved up from 0.89% to today's 0.92%.
So, both the 2-10 and 2-30 yield curves have flattened by 21 bps since mid-November and the spread in the 2-10s is only 126 bps or 1.26%. That's the most narrow and "flattest" it has been ALL YEAR. That's not good at all in the traditional, Keynesian sense as a flat yield curve is almost universally believed to be a precursor to recession. Here are a collection of links I found simply by googling "flat yield curve". Some of these date back nearly 10 years:
- https://www.forbes.com/2010/06/08/yield-curve-predictor-personal-finance... (2010)
- https://money.cnn.com/2005/07/14/markets/bondcenter/yields_investors/ (2005)
- https://www.thinkadvisor.com/2015/11/03/bill-gross-flat-yield-curve-crus... (2015)
- https://blogs.wsj.com/moneybeat/2015/04/12/flattening-yield-curve-latest... (2015)
And this is why I believe that, whatever Mother Fellen decides in two weeks, gold (and silver) is going to go UP. Even if she does raise the Fed Funds rate by a few ticks, all she'll be doing is setting the table for a rate CUT next year...maybe even more QE. The collective "market" will quickly figure that out and begin to anticipate it...and UP will go the metals...particularly into year end and January.
So, relax and be happy, my friend. Things are about to get very interesting AND it's the holiday season so put a smile on your face and be of good cheer.
I need to wrap this now so that I can get to work on that S&P "candle" update. We'll be back later, though, with a full podcast summary and review so don't be a stranger.