Thomas
DeChastelain
Memorial Archives

Gold Sector Update
posted Sep 10, 2005 at 01:46PM

Just a little more venting

A seemingly small incident that best encapsulates the leadership/ belief system abyss that America finds itself, involved, not so coincidently, the President himself. For me it was the emotional nadir of the week following Katrina's land fall

On that Thursday it was announced that George Bush would get briefed by the governors and other chiefs. Fine. Good.. A little late but hey he was just coming off another vacation But a good face to face is what is often needed to get into the weeds of why things were falling apart. "Why has the pre-positioned supplies not been released?.... Why have you refused the offer of waterbombers? Could you use twenty more?. I see you have only one or two choppers fixing the breach in the levees. Could you use thirty? How about a few Sikorski SkyCranes? You are eventually going to be draining a lot of crappy water back into the lake. Can you use a chlorine injection system and an oil skimmer at the point of egress to mitigate the impact?.."

Of course that is not what happened. What we got, in military speak, was "a dog and pony" show. A dog and pony show is a PR exercise to either keep up relations with the local community, or "entertain" some visiting big wig. They are usually scheduled in lulls in the training cyle when there is absolutely nothing going on. They are considered by all, at least in the infantry, as useless - several levels below masturbation as a way of killing time.

To hold one, in such circumstances is incomprehensible.

Take this from the trooper's point of view. The Coast Guard was the one organization that was actually doing anything. Of course the Coast Guard was not meant to evacuate major cities - for every house they cover, they can see thousands that need attention. But until help arrives they are the only show in town.

Imagine then that they get a call to stand down four or five of those helicopters. They are ordered shine up those choppers to a fresh off the assembly line sheen. At the appropriate time they are ordered to hover around one of the choppers and pretending to do maintenance. They are then ordered into line where they conudct picket fence duty, acting as backdrop like your standard orchestrated Republican Town Hall. Then they get to hear their chiefs utter motherhood like, "Mr. President..this was a really bad storm" or banal bromides like "we need to concentrate on rescuing people"

The rest of the briefing devolves into sheer propaganda as the president, govenors, and the head of FEMA heap lavish congratulations and praise onto each other for their great leadership and fast response.

There is only one correction reaction and that is utter contempt. Ok no one is shooting at you but Katrina in that first week was about as "operational" as you can get.

Imagine a general placing a squadron in a stupid place where they immediately get surrounded and find themselves hanging on by thier fingernails. and fighting for thier lives. They then get ordered to pull four tanks out of the line, polish them up and get ready for an honor guard where they watch the people who put them that mess tell the world how brilliant they are.

It is the kind of thing that gets soldiers to carving names into bullets.

On another note I am a bit ticked on how the Fed have labelled "homeowners" as "stragglers". Mind you, if I was running the media I would look at what is now being called "evacuation" and call it "expropriation".

Back to the Gold Sector.

The sector had another constructive week. Better it did so even as the USD stabilized. Outperformance is always a bullish portent. The sector finds itself tantalizing close to some strategically important resistance metrics. Breaking these metrics would confirm that the May bottom was the start of a major new upleg.

Bullion Daily



A very good strong move off of moving average convergence. It now deals with years old price resistance. Breaking this would have the same significance as breaking the $330, which also took a number of tries.

HUI Daily



The reverse H&S is officially out of play. We have a nice established trend-line.

Dow Jones Precious Metals Index



I just wanted to show the price action of this index because it seems to me an easier read from an EWA standpoint. One can see that the index is moving up impulsively in fives and correcting in an overlapping manner. This chart anyways suggests that the gold sector is currently in another impulse leg.

HUI/Gold Ratio



Breaking this resistance trend-line has historically been the techncial signal announcing a major new bull leg was underway. Swing traders should consider adopting a more buy and hold trading strategy.

USD Daily



Continues to look bearish. At the least a test of the 200 dma appears to be in the offing. That would coincide with gold stock indexes finishing off impulses. Most likely the dollar will bounce, while the gold sector does some backing and filling. These are the periods to observe as they can confirm whether the bull case is still on or not

Trading strategy Discussion.

All bullish trends remain firmly in place. A word about COT. Yes it strikes me a being bearish but in the end, it is price action that is the key indicator.

I remember COT giving me fits back when the HUI was dealing with the 150 level. During that period the gold sector was again involved in a long correction. As a swing trader this was actually a comfortable environment. As the HUI was coming into the 150 resistance for the nth time, the COT showed open interest near all time highs seen only in early 1980's. Dutifully I cashed in my chips..only to see the sector move up over those resistance lines and force me to reenter. Susequently the COT went on to set new benchmark highs.

I never did make the switch in my head though and remained in swing trader's mentality. That made sure I did not experience pain after the market eventually topped but as discussed previously, it also meant that I did not capitalize on what had been some incredible entry points. That is why this time I have hung on to a portion of my gold shares throughout. And quite frankly those that I did trade out of, I wish I hadn't.

Having said that, remember that if we do get that big HUI/Gold signal then one is looking at 5-6 smonths of very bullish price action. One can start looking a bit down the quality food chain where there are still lots of stock charts that show bottoming action. Two examples which come to mind are NDM.V and GBG.TO. Now I haven't done any due diligence to see why these stocks have not maintained thier gains but it is hard to see them not move up in a "Wave III" type environment. As well exploration stocks, which become gutted submarines in sector corrections, also start catching and maintaining a bid.

Now having said that remember that the markets are hardly that accomodating in that patterns are repeated. So do take the time to try get the best entry points for any cash you still have available.

The "difference this time" that I have been expecting is one more false-breakdown scenario. Something to really buck off swing traders before really taking off. Now if the FED does NOT raise rates that will probably not happen. The sector will just continue to climb.

From last week you know that I think the Fed will keep raising rates if he can. In that scenario one might see a buy technical signal which people will jump on, but then turns into a "throw-over" which bucks them off and then really takes off.

If you don't have any exposure to gold yet, I do think the luxury of thinking in such "playing cute" terms is coming to a close. If the HUI/Gold signal breaks, then dips should be bought. As time passes one will be forced to increasingly compete with the "herd".

Good trading

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