Gold And Gold Stocks – Back To Tricky, But Interesting Signals Emerge

A Relentless Short Term Decline

When we last discussed the gold sector, we noted that with gold approaching its 200 day moving average, a pullback had to be expected soon. In the meantime, a bit more than just a pullback has happened, as a severe sell-off started after the October FOMC announcement.

Photo via genius.com

However, as you will see below, this has most likely merely reset the clock a bit in terms of anticipating a medium term trend change (even if some more near term weakness, or a short term up-down sequence retesting whatever low is put in seems possible, see discussion further below).

Gold and the HUI-gold ratio. At the most recent lows, gold diverged positively from gold stocks. It appears as though the opposite kind of divergence, with gold stocks holding up slightly better then the metal, is about to occur at the upcoming low

With regard to recent short term developments, here are a few interesting statistics mentioned by Jason Goepfert of Sentimentrader in an interview at Kingsworld last week. Our comments are interspersed in brackets:

“The sell-off in gold and related stocks is now at historic proportions in terms of persistence and severity, which has led to rallies in the metal and related stocks virtually every time. […] we have been seeing a historic level of focused selling pressure. Never before has gold been down this many days over a three-week period [as of Friday, gold has been down 15 out of 16 trading days – this has apparently never before happened]. With Friday’s down day, this was the 8th straight loss, marking the 7th such streak since 1975. Three months later gold was higher every time.

There have been 9 days when gold stocks either rallied more than 2% on a day that gold fell, or they fell more than 2% on a day that gold rose. This happened three other times over a three-month period: 2001-01-11, 2002- 08-06 and 2008-10-30. Six months later, the HUI Gold Bugs index was higher by 48%, 28%, and 58%, respectively [i.e., this is the fourth such streak in 15 years. As usual, the sample size is small, simply because such things don’t happen very often – and both major lows and highs that are usually accompanied by such extremes are by definition only occurring rarely and at specific points in time].

The biggest caveat here is that money managers are still long gold. They reduced positions quite a bit this week but remain near neutral levels at best. Previous lows in gold occurred when managers were nearly net short” [he doesn’t mention this explicitly, but this has only been true recently, i.e. during the 2012-2015 bear phase. Slight shifts in speculator positioning are not unusual near pivot points – this could e.g. be observed near the 2011 peak as well, only the other way around].