Precious metals expert Michael Ballanger discusses the importance of caution and timing in gold investment.
Back in early March, with the HUI screaming along north of 150, I published “Patiently Climbing Aboard the New Golden Bull,” in which I opined that we had entered a brand-spanking-new bull market in precious metals and related equities. But I also noted that, with the Relative Strength Index (RSI) above 85 on the daily SPDR Gold Trust ETF (GLD) and approaching 80 on the daily NYSE.Arca Gold BUGS Index (HUI), the short-term outlook was less than appealing, while the intermediate and long-term outlook was unequivocally bullish for the first time in five long years.
When that report went out, the next ten days was spent fending off a barrage of nasty, spiteful emails as to why the commercials no longer mattered and why the COT was a “useless tool” (“just like the author of that report”). In fact, for the next two months the COT continued to erode, with prices of gold and silver elevating modestly and with the miners going literally “vertical” as the number of “ha-ha” emails was directly proportionate to the move in the HUI. It got to the point where I was sledge hammering the liquor cabinet before lunchtime. However, as is usually the case, the COT, while failing as a timing tool, proved to be a valuable directional indicator and gold and the miners have finally rolled over, offering me vindication (of sorts) and a chance to cover the hedges and add to my favorites PATIENTLY.
I said this would be a “nasty week” and it surely was, with mostly everything shiny under pressure. The chart below shows a clear blow-off in the miners in the move up to 236 with RSI above 70 four times between February and May with …read more