Just Take The Metals Out Back And Shoot Them!

So, does my title appropriately capture the sentiment about metals right now?

While the title may seem a bit extreme to some of you, many are leaving the metals for dead, and others have already written their obituaries.

In fact, this past week, just as the metals were hitting what will likely be a bottoming in either a third wave of this decline, or possibly even all of the decline, a headline article came out on MarketWatch entitled “Here’s why gold might die out as an investment.”

Within that article, the writer alludes to the fact that since gold was not able to rally due to the geopolitical tensions around Turkey, then it is a sign it is no longer useful. However, if any of you have read my articles on this issue, you would know that history does not support the premise that gold reacts as a safe haven for geopolitical tensions. This is purely a fallacy. But, since it is regurgitated so often most of the market has taken it as gospel despite the facts suggesting otherwise.

The next premise within the article upon which he declares gold as dead is due to technology, and he is not referring to cryptocurrencies. While he is not wholly clear regarding this perspective, my assumption is that he is falling into the trap of most people in the market. Since the Nasdaq has continued to rally strongly, along with its supporting cast of FAANG, then that is clearly where younger people are going to put their money, rather than gold.

Yet, this argument is based upon the linear extrapolations suggesting that what exists as the status quo today will continue forever into the future. And, for those that have been around long enough and have enough experience in life would know, this is yet another fallacy upon which his arguments are based. As life and equity markets are not linear, neither should be our expectations.

Now, when you couple this with all the other anecdotal sentiment indications we are seeing, it would suggest that we are certainly nearing a major bottom in the complex. Most people do not develop this negative perspective for an asset unless it is either nearing a major bottoming or about to become extinct (bankruptcy). And, I don’t think the metals are filing a Chapter 7 application anytime soon.

As far as my expectation for the metals, when we came into 2018, I was quite bullish the metals as they had a strong 1-2, i-ii set up to the upside. I have noted many times that if a chart that presents a long-term bullish perspective, such as metals, provides a shorter-term bullish potential set up, I will always defer to that set up as my primary expectation. That is what I did with the metals coming into 2018. But, I provided a clear guide that this will remain a strong perspective only if GLD remains over 119. I noted quite clearly that if GLD were to drop below 119, it would make me question that immediate perspective.

Moreover, when GLD then broke below 117.40, I said many times that this immediate bullish set up will now take months to resurrect. I also noted that I thought the 113 region would likely be tested, and if broken, would suggest that GLD would not bottom until we reached the 105-109 region. Thus far, this seems to be what is playing out.

So, nothing has really changed from the article I posted a few weeks back:

As far as the overall structure in GLD, I do not have any clear indications that a low has yet been struck. While silver broke those positive divergences I noted in my last article, the GLD has continued down in the weakness I noted can still take weeks until completed. And, even if we see a rally back up as high as the 118 region in the coming week or two, I still think we will need to see lower lows relative to those struck on July 19th before I would be able to turn immediately bullish again.

Support now resides between 113-114 in the GLD, with resistance at 118.30. I would want to see an impulsive rally begin once that support is struck. However, should that support break, it opens the door to an even deeper pullback towards the 105 region. Yet, I don’t see that deep a drop as highly likely at this point in time. But, I will continue to follow the clues left by the market in the event support is unable to hold.

The bigger patterns still suggest I maintain a larger degree bullish outlook on gold. But, until we have another break-out set up develop (which as I noted in my last article can still take us several months), I have to keep such bullish expectations in abeyance. And, as I continually warn my subscribers, stay away from leverage (options and 3X ETFs) until the market confirms the breakout set up and the heart of the 3rd wave rally.

As the market has certainly followed through to the downside as outlined above, the potential for seeing that 105 region has increased. But, first, I want to see the market bounce back up towards the 115-116 region. While I am also tracking the potential that we struck a bottom to gold this past week in the overnight market, I don’t see that as the higher probability at this time. Rather, the market will have to prove that to me with an impulsive structure through the 116.50 region. So, I will be watching the next rally quite closely for the structure it develops up to the 115-116 region resistance. Should it be clearly corrective, then I will be looking down for a fifth wave drop to the 109 region, with the potential for an overly emotional reaction as deep as the 105 region.

See charts illustrating the wave counts on the GLD, GDX, NEM, ABX and YI.