Doldrums and Summer lows? Pining sez No!

Mon, Jun 19, 2017 - 1:13am

With analysts at most public PM websites now turning decidedly bearish, with the summer doldrums staring us in the face, with the new rate hike raising interest rates (on paper making gold less desirable as it provides no yield), and with the gold seasonals suggesting that “sell in May and go away” was the play, there is a definite bearish tilt to the sector right now. That’s why (among other things) we have a great risk-reward setup staring us in the face.

Pining thinks it’s a great place to go long (with stops)! Let me give you a few reasons why, then I'll outline the trade:


A quick review of 7 popular and publicly available precious metals analytics/trading sites, and a glance through the comments on those sites, made clear to me that there is (at least roughly) a general consensus in the metals complex right now: after failing to break through 1300, and first pushing through then falling back below the long-term downtrend line in gold, the summer doldrums are upon us and consensus sentiment has turned bearish. The two most likely scenarios I saw discussed were either (1) we languish and churn lower for the next few months following typical gold seasonals pattern into a July or August low, or we cascade from here into an earlier low, perhaps late June or early July.

I like this widespread bearishness very much. This is precisely the type of setup the metals love; wrong-foot the investing public, going against well-known patterns (because it’s never that easy in the metals) and making sure the majority of retail is not on the train and has to chase price. That’s also why the so-so COT doesn’t bother me much, that pattern has been a bit TOO clear recently and has been becoming a little too easy to trade, so I think it’s due for a wrong-foot. In fact it is this “juking the crowd” and subsequent chasing of price on the way up that provides the fuel for the best runs in the metals. This is an excellent setup from a sentiment standpoint. Just ask yourself, when was the last time the majority of retail sentiment was dead-on correct and on the right side of the trade in the metals? Thought so.

GDJX rebalancing is behind us

Regardless of where you stood on the whole GDXJ/JNUG issue, the fact remains that it is now largely in the rearview-mirror. This means a genuine, significant source of instability in the sector is now largely behind us, removing some of the unpredictability which had been a drag on both price and sentiment. Additionally, it is likely that money managers who may have previously been hesitant to allocate funds until this nonsense was sorted may now be prepared to put that money back to work, thus bringing an unexpected tailwind that could help things to the upside. If instability was a negative, then stability should be a positive. Bullish!

Crossing over of the 50,100, and 200 DMA on the Gold Daily chart:

Don’t look now, but for all the wailing and gnashing of teeth, gold is about to see the 50 DMA above the 100 DMA above the 200 DMA. This golden cross setup is seemingly timed to catch people off-guard given the poor sentiment we see now, yet will trigger buy signals for technical traders and algos. With about 60% of stock “market” volume now quants, this is not immaterial. With a massive turnover in shares last week, especially the huge volume on Fed day last Wednesday (see black arrow on chart, look at that volume level) and follow-up churning, there has been a significant rinse in the complex. Lots of longs have been spooked out of their positions, and some shorts have covered profitably. This actually looks good to me, with Quad witching just passed on Friday, and particularly the Thursday and Friday follow-on action- no waterfalls, just tons of repositioning.

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The tinfoil hat wildcard, but worth a mention: Is the Fed schizophrenic or working a plan?

Traditional analysis says that when the Fed raises rates, gold craters. Yet during this recent cycle, when the Fed raised rates Gold took off. And guess what? The Fed just raised rates. Short version- Bullish!

Long version: I actually think there is a reason for this counter-intuitive recent action in gold when the Fed has raised. Traditionally, why did the Fed raise rates, and when did they do it? They raised when the economy was getting hot and genuine fears of inflation were taking hold, and they did so to cool-off inflation and that hot economy by sucking liquidity into bonds through higher yield. So with better options (yield) available, gold (which produces no yield and is an inflation hedge) went down. But recently, the Fed has raised with (1) no real signs of inflation, and (2) and a genuinely poor economic picture. So gold didn’t do what it usually does, and in fact one could argue that gold was simply performing another of its traditional roles- that of the Safe Haven in times of uncertainty- since raising rates into a poor economy is quite possibly a recipe for a stock market crash (given that the market is in a highly overvalued position historically). In this context, gold rising (insurance) when the Fed (stupidly) raised rates actually makes perfect sense.

Tinfoil Hat version: Has the Fed decided to become as part of “le Resistance” like so much of the Washington establishment has, and is this the sign? Before you dismiss me as a nutter, answer this simple question: After 8 years of keeping what was initially billed as “extraordinary measures that are historically unprecedented and temporary” in place for nearly a decade now, why has the supposedly ‘data-dependent’ Federal Reserve suddenly just hiked rates AGAIN at a time when economic data just missed so badly? Again? And yes, the previous sentence showed how what the Fed once described as temporary is now permanent, what was once extraordinary is now standard, and how "data dependent" means ignoring the data no matter how bad it is. This is sheer Schizophrenia. Or, you know, Central Banking.

The most recent miss inspiring our data-driven Fedsters to hike more was so big it was the worst miss in six years! In fact, the last time economic data disappointed by this great a margin the situation was considered dire to such a degree that Bernanke unleashed “operation twist”… back in August of 2011. So how is this rate hike in any way logical for a “data-dependent” Fed, absent the deliberate intent to muck things up?

If the Fed were truly making policy as economic data dictates, they wouldn’t be doing this. So why keep hiking rates into a dumpster-fire of an economy when they know could easily lead to a major stock market correction, crash, and/or recession at some point (maybe soon)? Occam’s razor suggests: because they’ve decided that’s what they want! If you do A, knowing it will probably cause B, that strongly suggests you desire B as an outcome. Simple. Call me crazy all you want, but that explanation seems quite consistent with the tone and behavior I’ve seen coming from the rest of the DC/government establishment for the last half year, so I don’t see why the Fed would be any different. When the feeding trough is threatened, some folks ‘resist’, some folks leak, some folks hike. Potato, po-tah-to.

And if you think the market won’t be allowed to drop because it’s never allowed to drop, ask yourself WHO has not been allowing it to drop for the last 8 years? The PPT/Fed. And what are these rate hikes suggesting they might want now? Ummm hmmm.

Regardless, don’t totally sleep on the long-shot catalyst folks; the S&P finally heading south as a possible catalyst for gold…

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Trendline test, rise above, and rejection:

One of the lessons I’ve learned the hard way in the metals is that trend lines are not what classical trading theory says they are. In classical trading theory, a trend line should act as a psychological level of support or resistance, and when (for example) price rises then bumps up against it then breaks through, it is supposed to trigger a new wave of buying as other market participants (seeing the strength of price in breaking through the barrier) join in the buying, driving price higher (or of course, in some cases rejecting price and sending it back down).

But all that supposes free and fairly traded markets among participants of equal standing before the law. And these are the metals. HAHAHAHAHAHAHA!!!!! So here, trend lines are places where, when resistance is breached, once price breaks through and attracts new buyers, THEN the market “makers” crush price with an avalanche of paper to harvest all that new money that just came in. Ring the register, bank the bonus.

So the way trend lines work in the metals is that price bumps against resistance or trend lines, and if it goes through bringing in new longs, THEN it gets smashed back down below, and only when everyone who just got run has either been cleared out or turns bearish will price finally be allowed the possibility to rise back up through that line at some point.

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In other words, in the metals, trend lines are only valid indicators after the gang-rape has occurred there. We’ve now had that in gold (twice, actually), so in my book, we are finally clear for a rise up through 1300. Strange? Yeah, but that’s how it works around here.

The Bottom Line: Risk vs. Reward

In the end, all of the above is just food for thought, or fun speculation. As the wizened sage of the trading pits atlee once said, “That’s a nice story. Ms. Market doesn’t care about your story, she will go where she wants.”

This is a basic range-trade with well-defined risk vs. reward. You take the known trading range, buy-in near the recent low of that trading range, and use that as your stop- it’s a simple play, regardless of whether any of the above winds up being a catalyst or not. Right now, GDX is just above the recent lows of May, so we have a very clear and recently defined low. We need to make a higher low above this level if we are going to continue moving up, so there is your well-defined stop-loss level. GDX is around 22, and 20.75 would be my stop-loss for this trade… we go below that, the trade is busted, so get out (FYI, I find that gold and silver are gamed so much day to day that setting stops, entries and exits via GDX is much more reliable and predictable, even if the vehicles I am trading are gold and silver). A tight, well-defined 5-6% stop-loss if you’re wrong is acceptably low risk IMO.

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But the reward… if this takes off like I think it could, we would at least revisit the highs of GDX 31.5 of last summer. The safe play would be to take 50% profits near that point, then wait for market action to decide further, but I suspect it’s possible that the momentum generated by a rise from 22 to 31 would mean that bull might very well keep running until we hit the 36, and possibly on the outside the 40-42 range. But let’s stay conservative (recent range-bound) in our calculations and stick with the 31.5 figure- that would be an unleveraged gain of 43%. Put another way, that’s a risk/return ratio of 7.7 to 1 on this trade. (Best Borat voice) Verra Niiiiiiiice!!!! And if it keeps rolling to 36 or even 40? Ka-ching!

. . .

So you can have your summer doldrums, your new lows, and your gold seasonals. This parrot, with disciplined stops, is going long.


About the Author


Jun 20, 2017 - 10:43am

crypto apps

Some crypto are coins, but some are closer to " apps." Ppl get caught with terms "COINS" but some are closer to "APPS." Easier example, if u can "crowd source application"?

Like use example how much is Microsoft Office worth? $100 or billions?

What if you can crowd fund the next apps? Does that help?

Jun 20, 2017 - 10:42am
Jun 20, 2017 - 10:03am

Cryptos or Miners

I'm a retired geologist/field geophysicist...Maybe I should have jumped, tiptoed in...with cryptos two years ago but I didn't...I stayed with putting xtra dinero in physical Au/Ag always hoping for that upward break in manipulation...I now agree with Mr. Fix with respect to the PMs...So, I have now begun to invest in what looks to be the next big thing and that is EVs and battery technology...Junior cobalt and lithium miners is where I have begun to invest and I truly expect 4 baggers by end of 2019 when most will be in production...Cobalt miners especially...Also, I may put my toes into a couple of zinc miners as that metal has now begun to be in deficit...

I'm sure I won't be doubling my investment every month (or less) like the cryptos but at least I can read the miners' investor presentations and fact sheets and look at drill hole results and know what I'm investing in...

I gotta go with what I feel most comfortable in and that is miners..

Jun 20, 2017 - 7:03am

FOIA Request On Susan Rice’s Unmaskings Rejected

Because “Records Were Moved To Obama Library”

by Tyler Durden

Jun 19, 2017 11:30 PM

Back in April, Judicial Watch filed a FOIA request for documents related to the unmasking of “the identities of any U.S. citizens associated with the Trump presidential campaign or transition team” by Obama’s National Security Advisor Susan Rice. Unfortunately, and quite conveniently for members of the Obama administration, Judicial Watch has been informed by the National Security Council that records related to their request can not be shared because they ” have been transferred to the Barack Obama Presidential Library” and will “remain closed to the public for five years.”

Here is the full letter received from the National Secruity Council:

Jun 20, 2017 - 1:52am

New Interview

If you like podcasts, checkout my most recent interview. It's 40 minutes long.

Don Durrett: Silver $75 This Decade!
Jun 20, 2017 - 1:47am

GDXJ Rebalance

The GDXJ rebalance is complete. The ETF now has 73 stocks instead of 49. Most of the stocks added were large caps. Before there were only 4 stocks with market caps over $1.5 billion. Now there are 23, with 64% of the weighting for stocks with market caps over $1.5 billion.

With only 36% of the weighting for stocks with market caps under $1.5 billion, I would no longer call it a mid-tier ETF. One positive outcome is that most of the silver producers were added, with Pan American Silver given the highest weighting. I think this will have a positive impact on the silver producer's share performance. They will get a bump as GDXJ grows in size.

Jun 20, 2017 - 1:19am

dow 44000

I crossed paths a couple weeks back with one of my clients who is a big player in the Canadian investment industry. Three years ago I asked him where the DOW was going. He said 20,000 and I just laughed thinking inside it would never happen and imagining all along that a crash was imminent. He asked me if i was still laughing at him. I asked him again where the DOW was going next and when should I worry about a crash. He said 44,000. "Don't even get excited until it hits that benchmark and when it does, then you can start thinking about a crash." His theory was based on the fact that there is so much cash out there floating around with nowhere to go. Take it for what you will but he is a smart man.

I'm still buying g+s and ignoring the noise. I'll let the sharks play their games and stick with the brains in this collective.

Jun 20, 2017 - 1:04am

Good Point Human Mushroom

I can't remember if it was here or somewhere else that I read the comment with the jist:

Due to the lockdown of algos, if all humans on earth drop dead tomorrow, the stock market will continue to rise.

Time to try something else.

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Jun 20, 2017 - 12:29am

Dingo - despite moments of despair

I haven't given up on TFMR nor do I intend to in the foreseeable future.

In this thread, Pining has demonstrated that we can still find our way in the world of PMs. It's difficult (was it every easy) and our focus has been challenged but it remains in tact.

I think we'll discover within the next few weeks that there is a solution to the crypto wave at TFMR. I would that it could be so easily resolved in the world of finance beyond our little place in the sun.

I for one, never use the Ignore button. Over the years, I've been both surprised and delighted to discover that I can find something in common with the most unlikely of Turdites. Indeed, I feel kinship, even friendship with some individuals who vigorously support views that I strongly oppose. They drive me crazy but I'm dazzled by their other redeeming qualities.

I don't oppose anyone investing in assets other than PMs and mentioning it here. I just don't like the adolescent discourtesy and bombardment associated with the 'crypto enlightenment' provided by some posters. Superior, cliquey, proselytizing and self-congratulating; and it just drones on and on. I have decided to continue reading their posts and clicking on a few of their links (just to remain informed), but I will no longer respond or provide rebuttal to any of their posts. They will of course, continue to chat among themselves but if we all take this approach, TF will soon corral them into a venue that is more appropriate for their particular passion. If not, I was here before most of them and I'll be here after most of them. C'est la vie.

Human Mushroom
Jun 20, 2017 - 12:16am

Mr Fix is Still Right

I saw a Mr Fix post on Main Street just the other day. Hadn't seen one in many moons. Thought maybe he wasn't subscribed anymore. Guess he is still.

It's also been many moons since Mr Fix simply predicted that gold and silver won't be allowed to rise until a total collapse of the current system. So far he's still correct on that point.

Lately, even Turd has pretty much stated as much with the probable bank created algo links with the USD/JPY pair. Which pretty much means there isn't all that much to talk about in the gold and silver markets. There simply aren't any markets. The bottom line result is all we can actually talk about is what we're stacking in preparation for that great FCD (Fiat Collapse Day), or how upset we are about the manipulation.

I'm sorry, but as far as I'm concerned, I tired of talking about this same-o same-o stuff after 6 years. We can't do anything about it.

Then low-n-behold, another kind of market springs forth that puts the screws to the very same cabal that has locked down our primary site topic. Most of us joined TFMR to discuss gold and silver because we are all gold and silver people. Well hells bells folks, we now know a shitload about the lockdown. Now what?

Is that all we really want to continue to talk about is the lockdown until the collapse? What the heck is wrong with talking about the new kid that IS causing headaches for the cabal since it's very obvious gold and silver isn't.

I'm an ex-electrical engineer and a causal computer programmer. Even with that knowledge under my belt, I still poo-pooed Bitcoin simply because I was a gold and silver guy. I'm so pissed at myself for staying ignorant about Bitcoin because of stupid pride, thinking that the only way to protect myself AND fight the system was with gold and silver.

You would have thought that a techie geek like me would have jumped into Bitcoin years ago. Nope, I was a prideful, ignorant dope. Thankfully I did, finally, 1½ years ago. The tiring non-action of gold and silver allowed my ego to actually study the new kid. Damn it, damn it damn it!!

It's so sad to look back at my courage to fight the government and the IRS over income taxes in the 80's & 90's, yet didn't have the courage to put a few bucks into Bitcoin when it was so cheap. Oh well, water under the bridge.

Alright then, so much for a little of my history of ignorance. Let's talk gold and silver. Yup, it's manipulated alright. I'll bet when the system finally collapses, my stack will me worth a whole bunch.

In the meantime, I decided to put some bamboo under the banksters' fingernails by buying some Bitcoin and Ethereum. It sure feels nice for a change to have a positive outlook while gold and silver remains very stable year after year. However, I'll keep this part short since no one wants to know anything about the new kid that is actually helping the cause.

Not that it will help with the gold and silver discussion much, but even as the prices have pretty much stayed steady for years now, I have done quite well since I bought most of my stack many moons ago when silver was in the $4.50 - $5.00 range. Gold was below $800.

I guess you could say I saw shit happening a long time ago and started buying. AND, I guess if you wanted to stretch my foresight just a bit more, ignoring my earlier ignorance, you might come to the conclusion that getting Bitcoin was a good idea as well, long before the masses come to the same conclusion.

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