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Gold & Dollar | Weekend Report | 25th-26th Feb 2017

Gold & Dollar  | Weekend Report | 25th-26th Feb 2017

Merchant’s Weekend Report

22nd Issue

 

Remember that these reports are a discussion of probabilities. I promise you: No one knows what is going to happen except for the banks. All the traders you follow, all the updates you read from various gurus are only possibilities. I also promise you some of them will be right and some will be wrong.  So my desire to is to discuss the near term likely outcomes while keeping in mind that in the long run, gold will be the winner. Gold will outlast all currencies, will destroy bitcoin, will remain the ultimate store of value until our civilisations are no more. But in the meantime we need to trade. Remember, when gold really takes a breather, I may move onto oil or other commodities such as milk again (note A2M in your calendar for June July in anticipation of August’s possible trend up).

But currently, precious metals  is where my interest lies.

I will also continue to look at both bullish and bearish perspectives, whether you like it or not. If you are sensitive to reality, please discontinue reading as the following information may cause discomfort. Reader discretion is advised.

(Oh I love being the author here…)

So here goes.

Merchant’s Trading Reminder

The quality of your entry point will determine the entire experience and journey of your trade. If you entered when the price was a “bit” high and the price falls on you, you will end up praying, hoping,wishing, willing the thing to go up, for as many days/weeks it takes for it to go back to your break even point.

The quality of your entry trade will determine your positivity, your mindset. A Merchant is patient. A Merchant does not arrogantly assume he/she is correct when entering a trade. Always have a plan B in case the trade goes against you.

Remember, with capital you can always trade another day. Without capital you cannot trade. Therefore, protect, retain and grow your capital, fearlessly and intelligently.

Gold

Let’s cut to the chase. We all read many reports, lots of news…we all know that gold hit $1259 USD on Friday and that AUD gold currently sits around $1638 and 17 cents to be exact.

The only thing that has been perplexing traders is that the miners have either failed to produce new highs or have actually been closing lower on days that gold has rallied.

First, let’s look at Gold in all its bullish glory. Once we break through $1262 and hold, the next stop is $1280. After $1280 we are comfortably looking at $1300.

Now keep in mind, that Barrons and Goldman Sachs have advised that gold will hit $1300 by the end of the year….in that regard they’re probably looking at it more like this, with the black cross being a point of heavy resistance which happens to be $1280:

gold chartThe above chart places gold on $1300 around December…but honestly, what do they know. They’re hardly every right because its not in their interest to tell us what will really happen. But keep in mind the market sees the chart above too…so that does set expectations.

Australian Gold

Clearly the decision point we discussed for Australian Gold in previous reports broke to the upside in the last few days:

Australian gold price

Caution:

But do exercise caution in the medium term based on the exchange rates…this could be a second bear flag. If this bear flag fails, then we’ll be hitting $1500AUD … so don’t become euphoric…remember, we have tumbled down from $1900 AUD per ounce…and miners are at similar levels now…that’s a $300 AUD per ounce difference…so don’t think that there is no downside risk…there is… The first warning bell in your brain should be if AUD gold drops below $1600 AUD. This is a warning bell. If it retests $1600 AUD and fails to hold… I would get onto the sidelines.

Gold bear flags

Is the above likely? Maybe not. Maybe. But can you be called a trader if you only up?

So think better by having a plan B.  Just in case you need it.

Gold Miners

(liking the visuals? me too…)

Okay… so are you aware that even though gold has rallied, the gold miners have been closing negative?

Here’s the gold miner’s index in the USA: GDX which closed lower and lower, even though gold has been closing higher and higher:

GDX Gold Miner Index

But Merchant… “We don’t care what happens in the USA…we’re like….different… Because we’re not the USA.”

Okay… true, but then we need to compare whether or not the US gold miners correlate with our local miners….

Oh look… GDX from the USA mapped against Newcrest:ASX, Evolution :ASX and Northern Star: ASX:GDX comparisons gold

Yip… They correlate like…100%. So it does matter what happens in USA…because U.S gold miners drive sentiment.

The same goes for HUI, GDXJ and JNUG… P.S JNUG got killed Friday dropping 6% on heavy volume (JNUG is the 300% movement fund that is ultra sensitive to gold miner price movements):

JNUG

SO GOLD IS UP BUT MINERS ARE DOWN?

*yes, I will have some more tea Mad Hatter…why do you look like a crazy Johnny Depp?*

Do I expect gold miners to rally Monday on the ASX? No. I could be wrong.

But history tells us that uncertainty causes an outflow of funds. However, I can tell you that I am confident that the open on Monday will be positive, since retail investors with FOMO will only look at price of gold instead of what is happening to the sector. I expect the gains to be gone within the first hour or two…. So if I need to enter a gold miner on Monday, I wouldn’t enter on the open…I’d rather see how the day unfolds and wait for a lower price. Again, I could be wrong. Each to his own.

So again, Miners down, Gold up…what gives?

I have hear many theories over the last week… Here are the most likely reasons in my mind:

#1 Earnings season has passed and profit taking has ensued

This is the number #1 reason I believe gold miners are pulling back (slightly). The trade is simply over for many traders until the next quarter.

GDX fell by around 1%… GDX (Gold miners index by Van Eck) consists of  many miners, but one of them is Eldorado Gold which just reported a negative earnings surprise of -%350: Ouch!

Eldorado Gold GDX

Therefore, not only are gold miners being sold off after their earnings (As with most shares), but some of the gold miners have actually disappointed shareholders, hence the shorting and the sell off.
Additionally, the “live” FOMC meeting March 14th and 15th adds extra fuel to the sell-off because a hike in interest rates , in theory, puts pressure on gold. (It’s quite the opposite in the current environment but…hey….we can debate economics later)…

All in all…if this is the reason for the negative divergence in gold miners, then major dips will be bargain buying opportunities to back up the truck and load up. However, this should only be done once the bearish sentiment subsides which could be 1 day or a few days/weeks. If gold continues its rally then gold miners will bounce asap.

Gold bouncing will also be determined largely by the Yen… should I discuss that in this report? *eyebrow*

#2 Gold is about to tank and banks are unloading shares while we chase miners out of FOMO

Not as likely, but still probable.

#3 Gold miners are being suppressed by the big boys for accumulation.

Just as likely as #2….

#4 Banks are shorting gold stocks because they cannot manipulate metals anymore.

Hmmm…very 007-ish… bit too much drama for me… *stocks nuclear bunker with baked beans*

_____

The truth is that overthinking it can become toxic to your mind. Rather, trade your stock. Your stock’s price will reflect the information available.

Do I think gold will come down again?

Well , do I think the Yen will bounce?

So…instead of looking at gold…let’s look at the Yen…

USDJPY

If the Yen holds 112 and above then Gold will not be rallying further in the short term (at least if the relationship between Yen and Gold still holds).USDJPY

However, if the Yen makes it’s way down past 111.50 then we’re days away from $1280USD gold and possibly $1700 AUD gold.

 

Long term holders have even more reason to hold.

 

As a bonus….here is a chart of gold miners GDX where I’ve marked all Februaries since about 2009:

Gold

Remember to check out the Speculators latest Wrap-Up here.

Think Better

|the Merchant

P.S please share.

P.P.S Leave questions and comments below.

13 Comments

  1. Anonymous

    Great update Jack,Glad your going to include silver too.

    Reply
  2. Anonymous

    Merchant,

    The JNUG etf is based on the GDXJ junior gold miners index, not on GDX. The 3x GDX etf is NUGT.

    Additionally, GDX was down .98% friday, not 2%, ( it was GDXJ that was was down 2%).

    Good to get your facts right mate.

    Reply
    • the Merchant

      Thanks ! Noted. Hopefully some value in what is shared since GDX, GDXJ, NUGT , JNUG etc were all in the red. Will correct those paragraphs.

      Reply
  3. Boudicca

    Hey Jack,

    Excellent post! I like your objective approach and the wisdom of having a Plan B. I second Paul’s request re Ag. Would you please also include Platinum. Pt spot price is at a 17% discount to Au when the historical average is a 20% premium!! Pt hasn’t been this cheap relative to Au since 1982, and I see great trading opportunities ahead for Pt.

    Reply
    • the Merchant

      Loving it. Will check it out during the week.

      Reply
      • Boudicca

        Thanks Jack. Will you be posting your findings / analysis re Pt at the Chamber?

        Reply
        • the Merchant

          Yes. I will post all finding at the COM

          Reply
  4. PAUL

    Hi Jack, I’m not sure if it’s been raised here before but I would be keen if you would consider adding a commentary for Silver to your reports, I hold IVR. Thanks and safe and happy trading….PS: are you SETH DAVIS from the gold forum on HC

    Reply
    • the Merchant

      Hi Paul. I’ll include silver from now on. Ps. I am not Seth Davis. I was banned from Hotcopper months ago. I was receiving too many likes etc to my content so I was banned for advertising. They asked me to pay for exposure. But since I don’t charge for the service I declined.

      Reply
  5. Nathan kepms

    The fact that you noted that only banks know tells me that they are manipulating the markets. Hence your analysis does not hold as no one knows what we can expect next…..only tha banks

    Reply
    • the Merchant

      Hi Nathan. If the Bank of Japan will allow a Yen below 112 then gold is going up and much higher. If the BOJ starts saving the Yen then gold will take a breather. We can only guess as to the outcome. But as a trader we need to be prepared for both outcomes.

      Reply
      • PAUL

        To me it looks like a strong reversal pattern is forming on the weekly USD/JPY, I can’t remember the name of that 3 candle pattern, hope someone here knows it… I tried to post a chart but doesn’t seem that the system here allows for this or I’m not not doing it right, I’m a bit old school and use the MT4 Platform so other charts may show a different pattern. Thoughts anyone ???????

        Reply
        • the Merchant

          We haven’t enabled loading up charts but I’ll get that sorted asap. Would love to view a chart. Otherwise post a link for us to check out.

          Reply

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