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The Gold Train Is Leaving the Station. Are You on Board?


“Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” 
-Andy Grove

“Complacency is a state of mind that exists only in retrospective: it has to be shattered before being ascertained.” 
-Vladimir Nabokov.

“The word cosmic is in danger of losing its s.” 
-Vladimir Nabokov

The phase ‘suspension of disbelief’ is a literary term of art referring to one of Aristotle’s principles of theater in which the audience accepts fiction as reality so as to experience a catharsis, or a releasing of tensions to purify the soul.

And there is nothing like being right to purify the soul.

For many, making money is secondary to being right… even if they are not aware of it.

In investing, the acting principle is the willing suspension of disbelief. None of us know the future.

Once we take a calculated risk at what we think that future is and are invested in a position, we are the protagonist — we are now invested in the outcome; we are not just watching the market once we have money at stake.

Without a bet, our beliefs about the position of the market are in objective suspense.

Once we have committed money, we enter a subjective willing suspension of disbelief.

So, in essence, investing is to a large degree a psychological game.

“It’s all about investors’ willingness to take risk as opposed to insisting on safety. And when people are highly willing to take risk, and not concerned about safety, that’s when I get worried.” 
-Howard Marks

It is only natural to seek confirmation bias when speculating.

But the facts don’t change about a company day in and day out along with the price; consequently, as traders we must rely on a way to measure the trend — technicals.

The art of investing is trying is connecting the dots between fact fluctuation and price fluctuation.

Connecting the dots is not a matter of black and white.

We have to play Stock Whisperer to be able to listen to the space between the ticks: intuition honed by years of tape reading allows one to peak behind the veil of the Great Spiritus Mondi that is called the stock market.

Let me give you a current example of what I mean as it relates to the rally in gold and gold miners.

In tandem with the cycles and the recent technical breakout are 7 pertinent factors in the gold rally:

1) A few weeks ago, Treasury Secretary Mnuchin paid a rare visit to Fort Knox, which was created by President Franklin Roosevelt in 1936. The last time a politician went to Fort Knox was in 1974. After his visit, Mnuchin stated, “We have approximately $200 billion of gold at Fort Knox.”

2) In August, Germany finally received its gold from the Federal Reserve Bank of New York.

3) This week, Vice Chair of the Fed Fischer resigned six months before his term was to end.

4) Donald Trump loves gold. All you have to do is look at a picture of his apartment in Trump Tower.

5) Trump hung the painting of one former president in the oval office: Andrew Jackson. Jackson hated paper money. In 1833, President Jackson announced that the government would no longer use the Second Bank of the United States.

6) Interestingly, on the 100-year cycle, a rich man from New York hated by the establishment massively devalued the US dollar and expanded fiscal stimulus.

7) Yesterday, Trump spoke about the potential of eliminating the debt ceiling.

Something’s in the air and that something ties to what looks like a powerful 3rd of a 3rd wave advance just unfolding following a 5-year bear market into late 2015.

The first 6 months of 2016 represented the first leg up followed by a 6 month correction into late 2016 (wave 2). Gold turned up in early 2017 rallying into April for a wave 1 of 3.

The consolidation into July 2017 looks like a one year high to low cycle which is best counted as a corrective wave 2 of 3.
Wave 3 of 3 got underway in August.

The initial push higher here should see last summers high of 1375 exceeded.

Gold may be saying two things: a massive Trump devaluation of the dollar and a whiff of inflation with some commodities getting shot out of a cannon.

Let’s take a look a big picture look a precious metals miner AG.

Notice the explosive rally in 2016.

AG triggered a Bear Trap (bullish) this week: following a break of support it has now recaptured that support.

Follow through above 7.80-7.90 looks like a major continuation signal.

This ties to a breakout above a 7 month trendline which ties to the 50 week moving average.

The possibility is that such a breakout could see a double to around 16,

It looks like gold believes the dollar decline.

At the end of August we showed the following charts on the dollar.

The dollar broke wide open yesterday and is vulnerable to a spiral to 84.

The gold and silver streak train is leaving the station and isn’t backing up to pick up players that want on board.

Worse yet, some shorted into the breakout over 1300 because since last summer it has been the ‘right’ thing to do to fade the precious metals.

Going into the Weekend At Irma’s there may be some chasing and short-covering in the sector.

Conclusion. The dollar and yields are crashing. Stocks may play catchup.

Stocks held up on Thursday in a mixed session but it may have been to set the stage for arbs to short for next weeks expiration and downward reweightings.

This is the typical pattern at the end of the first week of the last month of a quarter when the arbs set up a high and pull the plug if they’re going to.

Sometimes this gets out of hand as occurred in 1987.

The FANG-like names should be particularly vulnerable to downward reweighting’s next week if that’s the agenda.

The property and casualty stocks have fallen out of bed this week with the natural catastrophes.

If these companies are forced to sell stocks, it may lead to a panic.

On the 100-year cycle, we had the Panic of 1907 following the San Francisco earthquake in 1906.

Of course, news of the devastation took longer to absorb at the time.

Now news is twitterpatted.

So the market holds near all-time highs while natural disasters and geo-political tensions mount mirroring the fissure in the cultural zeitgeist in the US not seen since the Civil War.

The complacency in stocks is palpable.

Crashes don’t come from too much bullishness. They come from too much complacency.

I can’t help but wonder if hurricane season in the Atlantic will mirror the historic gales of September/October seasonality in the markets.

Trade back below 2440 again may be the money short.

If it happens, it wouldn’t be surprising to see it occur on a Gap & Go as every down gap for a year has been a Pavlovian Buy the Dip.

To say the market is set up for something big is an understatement.

Maybe it’s pure paranoia, but on the Street, only the paranoid survive.

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