What's The Gold Doing?

The gold market has been muted for the most part in this latest round of stock market weakness driven by pending banking crisis developing in Greece and Spain....until today. Interestingly, the historical inverse correlation that emerged in 2011 between gold assets and the broad US stock market has not really shown itself so far in this latest correction of what is emerging as a deflationary flight to safety episode.

Lets have a closer top-down structural look at the gold complex.



From the line chart below we find the overlays of GoldCorp (GG--NYSE 'Blue'), Gold Futures ('Black') and S&P500 mini futures ('Green') since Feb 2011 at the level of the day time frame.

We can see that from above the GG (blue) and GC futures (black) lines rally as the ES futures (S&P500 Green) collapse during the August 2011 market shock in response to macro-euro risk. This implies the early perception of gold assets as safety in times of political fiscal mismanagement and uncertainty. Following last August market correction we see declining gold assets with subsequent reflation in the broad stock market S&P500 into March 2012 in line with coordinated global central bank swap line liquidity intervention establishing a perception of stability. And since the correction in March 2012, which began as an early risk off pullback from an overbought stock market evolving into systemic risk-off flight to safety in the recent 2 weeks has seen gold remain very neutral in its corrective pattern....until today. Could this be another push higher in gold assets implying caution to stock investors from the long side.


We can observe the long term downtrend in GG via the day chart view below with a momentum Long buy signal generated May 17, 2012.

Using the day chart above as a reference providing context we can drill in deeper to the intraday  activity of GG and observe the short term momentum buy signal May 17 indicated by the 'green' arrow below and the LE - 34.61 (Long Entry) reference.

We can see on May 17, GG traded up and through the 3 day regression pivot overlay, with expanding ATR and volume to indicate a short term change in bias to the upside with a closing on that day > weekly channel low support level (blue horizontal line). This implies urgent buying in GG from larger funds and important structural change back above the weekly channel low and through the short term regression to imply change in bias.  On May 29, we saw GG pull back into lower weekly support (blue horizontal line) and rebound on excess buying the following day. I stay long through this pull back. Today we can see GG breaking above important monthly resistance (brown horizontal line).


We can also use the macro weekly chart below to examine longer term trend channels and regression along with Fib retracements to 2009 lows. We can see from below that the long-term macro-weekly channel low has been formed coinciding with a 50% retracement of the entire 2009-2012 up move.

Lastly, we can observe the Gold futures coming back into monthly support at 1523 for the 3rd time and stabilzing prior to todays rally.

We can look closer at the gold futures by examining the important Long signal generated LE-1566 May 30 coming off the important weekly low at 1532 coinciding with the monthly low at 1526. This LE is the system generated long entry signal as the gold moved back above the 3 day regression, implying short term change in bias which positioned me ahead of today's big price moved.

Minksy Moment?

Into June 1st; the EU banking crisis contagion is deepening. And retail investors are concerned about safety of assets and less so about return on assets  -- as IBD reported yesterday that 5.86B in net US stock fund outflows in April following 9.79B outflow in March and 11 of the past 12 months have experienced net outflows from retail investors. Where is all the money flowing? IBD reports retail inflow to bond funds of 24.61B in April and hybrid funds (stocks and bonds). This is evident as per the trend in US 30yr Treasury Bond chart below that reveals the velocity of flow into the 'safety' theme on the back of global macro risk.

The US 30 Yr Bond is breaking out big time. We saw earlier this week that it was finding support on the previous months highs (brown line channel) and has now moved aggressively higher this week.

This inverse move to stocks was part of our thought process coming into the trading week. And we can see below that the DOW Industrials mini future (YM) is failing below its previous monthly lower boundary level or pivot and is threatening to make 'new' lows for the year as per the chart below. See the 'orange' line reflecting these potentially new lower prices.

When we see the Bonds rallying as aggressively as they are and risk assets deflating as they are, we need to pay attention to this as traders and investors as markets are speaking that things are not healthy in the system.

Lets just look at a few other visuals of risk assets below

Above, we can see the Aussie Dollar, which has collapsed back from 1.07 (to USD) into .95 and the strong-hold monthly lower channel boundary in line with the current price. The Aussie Dollar is an important gauge into commodity-based sentiment and macro-asian economic state, which is also weakening on the back of today's China PMI data release.

Below, we can see the Oil market intensifying to the downside.

This will present to be a very good buying opportunity in risk assets, but we have to be cautious from the long side until we see evidence of market confidence re-emerging. We will have to use different techniques to gauge this starting on a micro-structural level.