The Only Question that Matters

Is the universe a friendly place?  Nah, just kidding!  That’s not the question.

But I’m hearing a lot of questions in my inbox and around the internet.

Is the bull over?

I’m in cash…should I start buying?

Are miners going to outperform if/when gold bottoms?

And on and on.

At this point, I think all such questions (especially the “is-the-bull-market-over” question) are distractions.

If the bull is over, only price will tell us.  I don’t think we can base it on Fedspeak, because if the Fed ends the bull market by their actions, a la Paul Volcker, then we won’t know soon enough.  We little people are not going to be tipped off ahead of time.

For the record, I won’t be confident in declaring the precious metals bull dead–based on price–unless or until gold closes a week below $1089.  $1089 would represent a 50% retracement of this ENTIRE bull run–based off of the April 2001 low of $255 and the September 2011 high of $1923.  Actually, let’s round up and just call it $1100.  I don’t think a secular precious metals bull, considering all that global central banks are doing, has any business closing below $1100 on a weekly basis.  There, I said it.

So, I have a line in the sand.  (Though we’ve been in cash since December, fortunately, so we’re not sweating it out.)

The point is, I choose not to make my decision based on some fundamental reason, such as currency debasement, interest rates, or Fedspeak.  Because all those things are controlled by powerful human beings.  You and I are not going to be privy to their plans in advance.  So if we rely on news about a change in fundamentals, it will be too late.

And so, here’s the only question that matters given the awful action in the precious metals markets since September 2011:  Have we gotten some powerful evidence that the downtrend has ended?

It’s going to take powerful evidence that the downtrend has ended, precisely because this has been a powerful and protracted downtrend.

Right now the answer remains “no.”  MACD, TSI, RSI…any oscillator or indicator you throw on a chart points DOWN.

I will not be taking a starter position in gold until it does at least one of two things:  closes above the rapidly plummeting 50-day moving average -or- closes above the 200-week moving average, above the top of a recent consolidation zone.

Screen Shot 2013-06-29 at 7.41.46 PM

Personally I’m leaning toward the 200-week moving average as my action point.  The 50-day moving average is plunging by the day, and so I’m not sure a break above it will mean much.  If this is a new bear market for gold, we must remember even bear markets have violent rallies.  Furthermore, the 50-day is probably the most-watched technical indicator in the world by the retail crowd.  If the bull is dead, there might still be such a bear-market rally that pokes above the 50-day just to draw in suckers.

One other interesting thing to keep an eye on:  Watch to see if the CRB can hold its June 2012 low.

Screen Shot 2013-06-29 at 7.50.47 PM

I’m not throwing in the towel by any means.  The most important market in the world–Treasury bonds–is signaling inflation is next, not deflation.  Yields are spiking.  Yet gold is being held down.  Some would say manipulated down.  A basket of commodities, on the other hand, cannot be so easily manipulated as the rather small gold market.

I’m considering a long trade on the commodities ETF DBC if the $CRB successfully retests the lows from last year.  But I’m playing it by ear–so definitely take this opportunity to sign up for my email and Twitter updates if you haven’t done so.  You’ll know immediately if I do something.


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