Gold Analog Update: Bomb Bay Doors Open

Two weeks ago: Gold Screaming Deflationary Collapse

If the pattern proceeds as it did in 2011, inflation is going to die so suddenly you'd think it was vaxxed.

The top is now complete. The yellow horizontal added for the 2012 chart maps to the support broken today on GC. Last time, gold fell 14% in two days, including the break day. If the analog is strong, that suggests an extreme down move in gold is possible here.

Miners will follow if gold goes.

Gold

If it wasn't for the gold and silver price rising, and having better looking charts, I'd say buying here is bottom-fishing and borderline knife catching. There's still risk that miners get pummeled in a sell-off. Gold, unlike silver, might have made a higher low compared to the March 2020 low.

 

Trade Time

I don't know if the rally will end with a burst of bullishness or if it will lose steam and end with a consolidation pattern, but as I've said in recent posts, now is the time to be window shopping as a bear. Have targets ready in case the bear swiftly resumes.

I come into today with long yen, short oil, long gold miners (in addition to shorter term GDX and GDXJ, I have been adding NEM Nov 55 calls) and short Apple, plus a lot of cash. I will be looking to either day trade the market or buy TLT/ZB on weakness.

For yen, I want to see if we start getting some deflationary signals in the market. I you click the yen tag, you can see the gap between the yen and the spread between US and Japanese long-term govt bonds. If there is deflation that drives interest rates lower, the yen can theoretically return to form as a deflation winner. If inflation will kill the market, then the yen's run could peter out this month. Additionally, this relationship need not hold longer-term because it wasn't this strong in the past. The relationship between the bond spread and yen was tight this year because the move in bonds dominated financial markets.

I've talked about the oil analog before. A strong analog would have seen oil drop last week. Instead, it popped to $101, and now WTI tagged a $93 handle. As I'm typing, CL has reversed $8.39 per barrel from Friday high to Monday low. The waterfall decline starts below $90 per barrel.

Apple was mainly a tactical play on a market pullback. I could be out of it this morning. I will likely take a short position for the next leg down in the bear market though. I have it because I'm mostly in cash with little equity exposure either way right now.

I'm out of most TLT calls, but I think gold miners offer similar exposure here. I expect gold will rally with ZB, though it probably won't be step-for-step on most days.

Rumors of a Gold Turn

Some comments: I have seen some good evidence to suggest gold mining stocks are are bottoming. Below are some charts of the larger miners. I am shopping for call options, already added AEM and mostly KGC. Looking for a quick pop right now. EQX has an inverse H&S. GDX reminds me of the UUP chart, but offset by about six months. UUP bottomed in January 2021. I do expect the dollar and gold will rise together in another panic event, and if expectations have shifted, investors should frontrun the central banks by adding miners earlier than before in any broad stock market downturn. RGLD has a topping pattern, but in a bull market that could fail. Lawrence Lepard posted the technical chart below that shows gold miners reaching what has been a good buy point in prior years.

Gold Miners

Gold-Nasdaq 100 Ratio Turns in Gold's Favor

My portfolio is mostly iding this ratio down.

Gold Miners Fill Gap and Reverse

Not bullish for the short-term.

Bearish Short-Term Outlook for Miners, Utilities

GDX has more room to drop as does gold, and that would break support for GDXJ. Some miners with nice charts such as 1911 are also developing short-term topping patterns and breaking some support. Long-term the outlook is still very bullish. The broader market sentiment is at euphoria levels though, and downturns in teh broader market typically whack precious metals at the start.

Real yields are on the rise. The utilities sector has bearish potential. A spike in rates could be the trigger for a broad market sell-off because it would signal the Fed losing control over the market or that bond vigilantes returned from the gulag.

Miners Ready For Big Move

I'm hedging with puts on large miners and GDX. Long small juniors and explorers. Here are the top-10 holdings in GDX. I don't know which miner could fall the most.

In general, I see a lot of bullishness in the stock market and metals, but aside from gold itself and some of the small caps, everything is at lower highs including the FANGs. I remain long-term bullish on gold and miners, but it seems like the time to exit everything was 3 weeks ago. The island reversal on $SPX is intact.