Gold Price Constructive, While Silver Lurks

Sunday, March 11, 2018

silver and gold

We have repeatedly noted that gold and especially the gold stock sector are dependent upon a counter-cyclical risk ‘off’ backdrop for the best of any bull phase that may be out ahead. Since mid-2016 the macro backdrop has been anything but risk ‘off’. Not coincidentally, that was when the last real rally ended for the precious metals sector. Everything since have been hopeful and ill fated bounces within a long and grinding consolidation.

We have also noted that an inflationary risk ‘on’ phase is not the time to get excited about gold and especially the miners, since gold would usually decline in ratio to inflation-fueled items like oil and materials that feed into the gold mining cost structure. The point being… avoid the touts of inflationist gold bugs.

With that bit of fundamental sermonizing behind us, let’s do a little short-term gold price management. Gold ground its gears last week and held the short-term support area at 1300 despite a market mini-euphoria instigated by Trump tariffs relief and the better than expected payrolls report.

The daily chart is by no means stellar, but it is constructive at or above the up-sloped 200 day moving average (currently 1290). Also, is that a Cup & Handle we see here? Could be, but let’s keep that hype at a minimum for now <Insert here all due caution when a chartist starts seeing patterns. TA is art, not science>.

Let’s take a look at the monthly chart, which was originally used in a post on Friday morning to point out a bullish big picture view. From that post…

What do we have here? We have the counter-cyclical metal quietly lurking below very key resistance as the risk ‘on’ (cyclical) party plays out. We have the gold price above key moving averages, which are aligned bullish in that the shorter-term the M/A, the higher it is (EMA 10 above EMA 20, which is above EMA 40). We have volume expanding, monthly MACD and RSI both green and looking good, and the ADX extreme downtrend eliminated in favor of a fledgling uptrend.”

And the point is that the macro moves in slow motion, on the current trend (positive for the economy and stocks) but edging toward coming changes. We routinely keep track of these changes using the ‘3 Amigos of the macro’ indicators. They are the SPX/Gold ratio, long-term US Treasury bond yields and the 10-2 Yield Curve. You can catch the latest update on the macro (March 8) here…

Back on the short-term price view for the precious metals sector, we have been tracking silver’s positive risk vs. reward situation for some time now. This has been noted in the contrarian bullish positioning of Large Speculators (who’ve greatly reduced longs) and Commercial Hedgers (who’ve greatly reduced shorts).

As was the case for much of the first half of 2016, when the precious metals are ready to rally for more than just a bounce, I’d expect silver to eventually pick up leadership over gold for the most intense part (i.e. momentum) of any rally.

On the short-term, silver’s daily chart continues not to inspire as it lurks below the converged 50 and 200 day moving averages and lateral resistance. But the key word here is “lurks” defined as… verb: “be present in a latent or barely discernable state, although still presenting a threat.”


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Gary Tanashian of successfully owned and operated a progressive medical component manufacturing company for 21 years, keeping the company’s fundamentals in alignment with global economic realities through various economic cycles.  The natural progression from this experience is an understanding of and appreciation for global macro-economics as it relates to individual markets and sectors.