The Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not?

Source: Michael Ballanger for Streetwise Reports   06/17/2019

With the precious metals markets range-bound and driven by forces beyond his control, sector expert Michael Ballanger turns his contrarian eye to the past.

With gold enjoying its best week of the year, with the Daily Sentiment Index charging northward, with the Relative Strength Index (RSI) pressing 72 for the GLD, with the RSI for GDX pushing 75, and finally, with the newsletter community all falling on top of themselves with self-laudatory backslaps, I think it is time to adopt the contrarian view and step back.

It was less than five weeks ago, with gold and the miners all coming off sharply oversold conditions (RSI in the mid-high 30s), that I wrote that “carpe diem” in reference to ownership of GLD calls and my two favorite leveraged miners, NUGT and JNUG. Sure enough, JNUG has moved from $6.50 to $9.50 and NUGT from $14.50 to $22.10, while the GLD July $120 calls rocketed from $2.20 to $7.60. (Note: I did not get “top tick” for any of them, but did bank yet another decent 40% return on the miners, and a double and a half on the GLD calls).

The point is that while I would love for gold to break out of this bullion bank headlock at the $1,350–$1,375 band of resistance, history has proven it to be a formidable obstacle and one that you absolutely must face.

Here are a few charts illustrating my point:

First, the GLD, hated by many, traded by most, and an excellent proxy for the “paper gold” market, the second-most corrupt market in the world and runner-up to the most corrupt market in the world, the Comex (“Crimex”) futures market in Chicago. Right up there beside it is the HUI, the unhedged gold miners index that represents the vast universe of gold mining entities around the world, and another great proxy for a vastly hated group of companies whose collective market cap losses in the past eight years has been colossal.

Many, many new millionaire investors have sprung up from owning these lifestyle-preserving dinosaurs, having been formerly billionaire investors prior to taking the gold miner plunge. The HUI has had no fewer than six rallies since the top in August 2016, but each rally was followed by new lows, with the most recent low coming last September. The RSI and moving average convergence-divergence (MACD)/histogram combo currently reside in “overbought” territory, and if history proves as reliable today as it was at every other visit to the $1,350–$1,375 resistance zone, we should don the personalities of the hideous bullion bank traders and sell that which we own in the paper markets to adopt their illicit yet enormously profitable tactics and executions.