Surprises to the Upside for Bullish Metals
“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. It one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
– Alan Greenspan
There are two ways I tell the strength of an item.
One is day over day relative strength and intraday relative strength— versus the markets as a whole.
The other is it’s reaction to news.
Gold and golds stocks are in the 3rd week of a high level consolidation during which they have shrugged off what in the past has been news that would have sent them south.
For example, a one day sell off resulted when there was no escalation of the trade war with China.
The metals complex rebounded strongly the next day.
Likewise the strong jobs number saw initial weakness in the precious metal miners which proved to be a buying opportunity.
Then we had the June CPI report which was hotter than anticipated.
This also left in question the degree to which the Fed may ease in the future.
Additionally, bond yields have rallied for a week.
Yet, GLD remains strong. This is a conspicuous change in character that underpins the bull market in gold.
Bull markets are marked by rallies on ‘bad’ news.
We anticipated a Rule of 4 Breakout—a breakout over a 3 point trendline— in GLD before the end of May and bought July calls mid-month at $1.07 selling the last tranche near $9 on the spike a few weeks ago.
Within the context of a Bull Flag, GLD left a triple inside pattern yesterday with Monday carving out an NR 7 Volatility Contraction Day. This is the narrowest range in 7 sessions.
These contractions in volatility are typically followed by an expansion in volatility within a few days.
The presumption is GLD is coiled to spring out of its pennant.
A resumption of the rally targets the 1463 region. This is 3 revolutions of 360 degrees up from the 1040 bear market low in gold.
I want to give every benefit of the doubt for gold to prove its bullish potential as a decisive move through 1463 could see gold go parabolic.
If gold tips its hand, we are poised to take another leveraged play in GLD.
GDXJ hit a new high for the move yesterday.
An hourly GDXJ shows a Cup & Handle in tandem with a looming hourly Rule of 4 Breakout.
Notice the recent hourly Rule of 4 Breakout in GDXJ on July 10th…which perpetuated a micro Cup & Handle within the context of the larger 3 week Cup & Handle.
In my experience, when potentially bullish patterns are traced out on multiple time frames the odds of an upside resolution are enhanced.
Backstopping the idea that GDXJ is poised to pop out of its high level consolidation is a 3rd higher low on the hourlies. Fast moves often follow 3rd higher lows on any time frame.
Subscribers initiated a long position in GDXJ in the spring and sold early this month locking in a 5 point plus gain.
We reloaded our long last week at 34.70 as GDXJ pivoted out of its first test of its 20 day moving average for a Holy Grail buy signal.
GDXJ projects up to 51 which is one price cycle of 360 degrees up from the September low of 26.
Silver should be on the verge of a big catch-up move if gold pops out of its triangle formation.
Among an array of mining plays that subscribers initiated in the spring including GOLD and KL, we took silver miner AG long at 5.90 selling half for a 2 pt gain this month.
While AG has had a nice run, it’s not too late.
AG exploded from 3 to 19 in 6 months in the metals run in 2016.
This is the kind of momentum moves the miners can have when they get in gear.
Recent reports that Trump has asked aides to find a way to weaken the US dollar have a chorus of analysts penciling in those expectations especially in light of coming rate cuts.
With gold on the verge of new 6 year highs there is a lot of blue sky overhead with everyone who wanted out having sold.
In bull markets, “surprises” happen to the upside—especially in metals bull markets.
Conclusion: My cycle work over the next few years appears to be a turn in public confidence on a global scale.
The backdrop looks like one where people lose confidence in government and where the central banks are trapped.
With Lagarde replacing Draghi, we will see a shift in confidence in Europe as well.
Lack of confidence in government underpins bull markets in the metals.
Pos GDXJ, KL, AEM, GOLD, AU, SBGL
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