Gold’s Kill Zone

There is nothing bullish happening on the gold and silver charts. Nothing bullish on the miner Index/ETF charts. Nothing bullish on the HUI/Gold ratio. In other words, when it comes to a segment as volatile and sentiment-dependent as the precious metals, we are in the kill zone.

That can be read a couple of different ways. First, the inflationist gold bugs are getting exterminated as the US dollar first rose and since has stubbornly refused to take a pullback.

But the time to buy the gold sector is pretty reliably when the bugs are dead or at least hiding deep in the woodwork; so deep that you’d not even know they are still there. Just as you should have caution when gold bugs are trumpeting loudly, you should be brave when they are in full retreat… or worse, dead.

So the ‘Kill Zone’ can also be viewed as an opportunity, like when a target is “in the kill zone”; and from the perspective of the following charts and graphics, the sector is in that zone now.

Gold has dropped persistently and taken out a would-be higher low (to December). It has become oversold with a little bit of positive RSI divergence and ADX showing fully bearish momentum. Why it’s bad out there! The daily chart does not show it, but there is longer-term lateral support just above 1200. Gold’s ‘higher highs, higher lows’ uptrend is broken. But again, we are talking a “kill zone” here, not nice and comfy trends like those afforded the stock market. It never was gonna be easy. The gold sector bottoms amid agony, pain, and doubt.

The level of enthusiasm for US stocks is becoming frenetic and overbought as Monday’s post points out. This is reflected in an approach of the target zone we’ve had since Monday’s post points out took out the old Fear Gap. Will speculation lurch to the upper gap? Could happen. Is risk to a full bullish stocks/bearish gold view high? Oh yeah.