July 2013 metals preview

Thus far, I've been refusing media requests to call a bottom. However, I did tell my subscribers yesterday (and lucky members of the general public, today) that I believe we've reached a bottom in gold on a monthly closing basis, based on Fibonacci levels.

 However, I do expect the lows of this week to be re-tested in both metals at some point, if not this month (a bounce seems likely), then next. And frankly, at this point, I cannot in good conscience write this post, which will be read by millions of wide-eyed investors working hard to put food on their families, without acknowledging the prospect that the bull market in gold may be over. It seems mind- boggling that this proposition could be true, in the face of such pervasive corruption and arrogant parasitism, such hubristic folly and dysgenic idiocratization, but a continued move down to the $800's (and a year of $1000 as resistance) after a little dead cat bounce, in conjunction with new stock market highs and unemployment numbers down below 7%, wouldn't really surprise me.

There's been massive very-long-term chart damage on so many charts we've been looking at, e.g. stocks vs. gold, and this one:

Somewhat ironically, it's the charts which are tempering my gold-bullishness--not arguments based on economics. I generally try to read as many anti-gold pieces as pro-gold, but I find them unconvincing. Here was a pretty good one (picked up from Kid Dynamite's stock twits), with the major premise that people are starting to "understand how monetary policy works" and thus no longer fear inflation. But always with these guys, ample straw-man kicking going on. Can someone contra gold please stop pretending that to buy gold = to fear incipient hyperinflation ? Gold is not so much a hedge against inflation as it is a hedge against monetary disorder and corruption, and (for the small players who have power in aggregate) a vote against the thieves masquerading as public servants. The anti-gold commentators often have cognitive biases that seem as obvious to me as those of the perma-bulls they mock: they take official announcements and releases at face value while refusing to question the legitimacy of the enormous zero-sum transfer of wealth (and power) to the financial class (i.e. the gambling elite) in recent years. They are blind to this perhaps because they benefit from it, perhaps because they have been swimming in its axioms like fish that don't realize they're wet.

Here's one of many academic articles offering a big-picture perspective to what's going on:

Financialization of the global economy

The instability of the world financial system, starkly revealed in the recent debacle, is not the only problem it poses. Its secularly increasing dominance over the real economy is in itself a phenomenon that needs examining. The article traces the source of this increasing dominance not just to the increasingly leveraged and increasingly incomprehensible forms of intermediation between savers and those in the real economy who need credit and insurance, but also to the increasingly universal doctrine that maximizing “shareholder value” is the sole raison d’être of the firm and the promotion by governments of an “equity culture.” Some of the social consequences of financialization are exacerbating inequalities, greater insecurity, misdirection of talent, and the erosion of trust [emphasis added]

These factors are not gold bearish (though they explain why the financial class hates gold), and so I don't think gold will enter a bear market.  The Fibonacci support line above shows a healthy 15 year correction to 38%, which I believe will reverse.

I went long bonds, long silver last week, but got spooked out of my position when silver went down more than the 7.5% I warned against last week. Of course, as things go, it immediately recovered on Friday, as did the ratio chart which was the basis of my trade. I don't kick myself over it though; you gotta draw the line somewhere, and I chose 7.5% for silver (assuming yields didn't fall substantially, which they didn't). (On the other hand, I chose 7.5% on the weekly chart, so I probably should've waited to see what happened on Friday.) 

I won't call an official end to the correction until the three line break charts below undergo reversals, as the regular reader knows (the first for gold, the second for silver). Even though GDXJ was up ~10% Friday, you can see these charts are still right at or near highs. 

 Here's the monthly 10-yr-yields-measured-in-oil chart, going back all the way to 1989. New bar again to close this month. I'm keeping my eye out for a reversal here too, which should be bullish for gold.

 Here's the monthly 10-yr-yields-in-gold chart. Entered the channel. Unless it pops out of the other end, still healthy correction territory, with trend in tact.

Here's a regular weekly version of the chart. If you recall, I put a lot of significance back in December regarding the parabolic channel on the log chart, which suggested to me that the end was nigh. Instead, the ratio broke out of that channel, bounced off it, and has taken off. I've drawn some possible reversal points, and I recommend they be watched.

Finally, in lieu of another silver chart, I have a CCI chart: the two should bounce together, if and when they do. I see the ~485 level being a very important point, not only on this three line break chart, but on a regular long term chart as well. 

Actually, let me add this weekly three line break chart of silver. Importantly, this week closed with a three line break, meaning silver needs to exceed $32 to have a legitimate reversal. That's almost +100%, and tells me we'll finish at least a week or two lower than this level before any reversal. But I don't think much lower.