Still Looking for Direction

The FOMC decision later today will likely furnish a trigger for the near term direction of gold. We would merely note two things: the long term chart still looks good to us – the triangle that has formed since the 2011 high continues to look like a routine consolidation:

 


 

Gold, weekly – a routine consolidation seems to be underway, but it may still take a while for it to fully play out. In the short term it is a coin toss in which direction it will break.

 


 

At the moment people seem not quite sure whether they should buy gold due to the escalating euro area crisis or sell it. There are also those who would probably buy if more monetary pumping were announced by the Fed and sell if no fresh measures are forthcoming. Which group will retain the initiative remains to be seen.

Sentiment is lately coming off the floor a bit, but not by a whole lot just yet:

 

 

 

 

 

 


 

The HGNSI (Hulbert Gold Newsletter Sentiment Index, chart via sentimentrader) has moved back into positive territory, but at 16.5% remains very low.

 


 

Rydex trader remain very cautious (via decisionpoint.com).

 


 

Sentiment of different market sectors compared: there is still a lot of pessimism on gold stocks, although they have lately moved up smartly from their recent lows.

 


 

In short, the sentiment backdrop for gold and gold stocks remains constructive at this time. However, we would expect the FOMC statement to be followed by a period of heightened volatility.

 

 

Addendum: FDIC Recommends Zero Risk Weighting for Gold Bullion

According to the latest proposals by the FDIC on regulatory bank capital rules, gold bullion is to be included in the list of 'zero weight risk assets', i.e., it will henceforth be as good as gold. The list of items considered to have a zero risk weighting:
 
 
The following exposures would receive a zero percent risk weight under the proposal: Cash; Gold bullion; Direct and unconditional claims on the U.S. government, its central bank, or a U.S. government agency; Exposures unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency; Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria (as discussed below).
 
 
This seems an official  reaffirmation of gold as an important monetary asset. 

 

 


Charts by: Finviz, sentimentrader.com, decisionpoint.com, ZEW. 


 

 

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3 Responses to “Gold, A Quick Take”

  • Mark Humphrey:

    You state that gold’s chart looks good, including the triangle formation. But it’s a decending triangle, which implies a descent ahead. That’s no Rule; only a hint. But lower gold prices would be consistent with a developing recession.

  • jimmyjames:

    Gold stocks are a poor risk/reward play, in my view.

    *************
    No question they’ve been poor performers although like you say timing can net some good profits-
    Producers have been posting record profits as of late and the share price has not reflected
    My strategy is-when it feels good sell some-when it feels not so good-buy some-
    It’s worked pretty well for the past 10 years-
    The general public has been burned too often with the volatility and i don’t think there’s much participation at this time-which makes me think they have some good upside potential now-

  • JasonEmery:

    I’m bullish on gold, but not so much on gold stocks. You really have to pick your spots carefully with the latter. Just looking at the hui gold bugs index, it was over 500 with gold at $1000/oz. Now, with gold over $1600/oz, the hui is at 450.

    If you are a good short term market timer, then you probably bought gold stocks at the May low, and would have unloaded half the position by now. Unfortunately, most folks are not that good at reading the tea leaves.

    As a talking point, let’s say we get a monster gold rally sometime in the next year. Gold stocks will probably rally too, maybe even a larger percentage move than gold. But if we get any sort of broad market sell off, you can bet that gold stocks will get beaten just as bad, even if gold holds up fairly well.

    Gold stocks are a poor risk/reward play, in my view.

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