Gold/Big Picture
Trader Scott’s Market Blog
December 29, 2016
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This is the beginning of a great question from David which is from the previous post and is worth a read, along with many other comments:
Hi Scott,
I think we are in the process of making a secular low in the PM complex as you have mentioned many times as well. Right now every newsletter writer and his mother are predicting sub 1100 gold if not lower. So again have to agree with you on the sentiment. It is awful.
From a cyclical perspective, we may see some volatility in the next few months but then we are we are headed higher for the next 3-5 years. There will be corrections along the way but the line of least resistance will be up.
Yes, I agree with David and believe this process (accumulation) began in April-June 2013, and we are in the final parts of it. But there will still be more volatility/entry points next quarter. The rally out of that low, in January for GDX, was different than all of the other rallies since the 2011 highs. It was much more sustained and powerful. The character of the market had changed. Next year will eventually be another good year for gold shares, as this one was actually pretty darn good. Also, yes the sentiment has recently been awful in gold, but that is changing. There was a rush by speculators to sell shares, and now they are reversing that situation. And on the sentiment thing, there is a pretty famous guy who seems to have a bit of a grudge against gold. People have sent me his comments calling for much lower gold prices. He may be right, but my answer remains that this late year time frame will be a retest at a higher level, with a rally out of December and another push lower in the 1st quarter. There are people all over the place who have been extrapolating their lower price for gold. So just like the selloff caused doubt amongst many gold bulls, now it’s the gold bears’ turn.
Just like agriculture, the PM miners have been in a huge trading range, with a few failed attempts to push higher, for decades. The potential here is enormous, which is one reason why last December I was so bullish. The XAU index in January actually went below the October 2000 low. But very cheap can get even cheaper, as we found out for several years. So no matter how cheap something is we can’t get sloppy with our entry points. It always looks easy looking in the rear view mirror, and on a long term basis. However, when we narrow the time frame and look at the GDX chart I’ve been running this year, and remember what we’re going thru now, the reality of this business is more apparent.
The light volume a few days ago didn’t bother me, as I believed it would reappear, and it did today, as another sign of strength – they are adding up. The sentiment overall in gold is awful. And although bonds are in a major bear market, currently the sentiment there is just as bad. While the sentiment in the stock market is pretty giddy. And I’m still bullish overall on the US$, the sentiment there is also “what could possibly go wrong”. The comments section from the previous post discusses these sentiment issues, plus taking trading profits in MUX today, GDX resistance, sitting tight in the gold shares, and more.
About
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.
'Trader Scott’s Market Blog – Gold/Big Picture – December 29, 2016' have 6 comments
December 30, 2016 @ 3:13 am Aamer
Hi Scott,
Finally the PM’s are moving !!! . I concur with David….sentiment in space is awful which is why I have been adding to my positions in the past 2 weeks. Almost everyone believes in that one more low before we start moving up again….which made me think that there might be a small chance that we start the upward move now…..but in that same line of thinking and after perhaps a week or more of stronger returns we may see another big move down as per your bigger picture. Fundamentals don’t appear to be driving this space as much as we would like it to be….so then the trading style has to adapt to the circumstances. That is why what and how you do things is so powerful…..no ego…no obsession other than to win !!! This was how hedge fund managers used to manage money before they became investors ……
I think it is important to understand how the flow of money is going to be determined in the coming months. If equity mkts continue rising…..they will suck in 90% of the money so gold moves may be muted etc and of course Govt moves against Gold will need to be monitored carefully…..think China may be next in line to pull a Modi like move .
Finally a very simplistic question – as my funds are limited and I wish to make the most of my exposure….why would I gain exposure to Ags vs Gold mining shares……or put in a different way….do you believe that Ags via exposure with equity exposure like RJJ etc will match the return profile of Gold mining shares ? The reason I ask is I dont have the experience in this area but so far in up days in the space moves tend to range in the lower 5% category vs a 20 % range in mining shares. I understand the risk profile is also different but purely from a return profile does it make sense to reduce PM exposure in favour of Ags ?
Thanks,
Aamer
December 31, 2016 @ 2:33 pm traderscott
It’s just about exposure to other assets Aamer and not concentrating on PMs. RJA will not match the positive returns of miners, but as you said the risk is lower on the downside. They’re different markets, but ags relative to gold itself is the question. When ags do truly enter an explosive bull market, they can be powerful moves. They have been low for so long, it will shock how quickly they can move. So for me, it’s not really about selling PMs to buy ags. It’s more about some diversifying. It would almost be like, buying gold itself vs. ags. Or gold itself vs miners. Miners are for me, more of a trading market. Short term and longer term. Physical gold is generally not for trading, unless we have the Aug/Sept 2011 buying climax situation. I do hold GLD for “physical” at times, but with the idea of selling it, like in November. Ags are a market with a ton of potential waiting for the spark. they will be more trading market at some point, but I want to be long to take advantage of the selling opportunity. I did some selling of RJA this summer, but with the intent to buy back on weakness. It’s up to you about the diversification, and how much is actually cheap out there. As to here and now. GDX came right up to that $22.25 resistance area I mentioned. It was a quick big move. And the light volume I talked about earlier, came back in to have the upthrust. Longer term it’s bullish. But when it comes in late, it’s actually a warning short term. Just look at some of those charts posted about SOSes. They have meaning bigger term, but are actually short term warning “signals”. It’s just good setups for shorter term trading, but also significant longer term. There is going to be plenty of volatility, it’s how overall positioning changes from weak to strong hands.
January 1, 2017 @ 9:11 am Dmitrii
I think POT (Potash corp.) has more potential to rise in case Ags breakout than RJA. What do you think? http://stockcharts.com/h-sc/ui?s=POT&p=W&b=5&g=0&id=p42292594326
January 1, 2017 @ 10:54 am traderscott
Yes, the equities will do better than RJA certainly. But look at how much it’s fallen. I’m trying to get the diversification among the commodities themselves. If you’re looking at fertilizer stocks, take a lokk at SOIL.
January 2, 2017 @ 5:26 pm Attila
Hi Scott,
I have been watching RJA for an entry as a longer term investment, but seems that the recent selling wave bottomed at $6.20 and reversed on high volume. As I tried to exercise patience and expected somewhat lower price for an entry I am now in dilemma whether to wait for a better spot or jump in now just to get some exposure to the sector.
Do you expect the lows to be tested again in the coming months?
Thanks,
Attila
January 2, 2017 @ 6:25 pm traderscott
I would never recommend jumping in Attila. There will certainly be more volatility, use it in your favor and just layer in – not all at once. Use each selling wave to add a bit. As an investment, it’s very cheap, but it needs a spark.