Gary Tanashian | Dec 06, 2012 11:00AM ET
I have been writing about risk management for quite a while now and want to be a little more explicit about it here on the site. We’ll use weekly charts to illustrate.
The nominal price of gold has done nothing unusual, even after yesterday’s hard decline to the 35 week exponential moving average. If it breaks through that level, then a bearish sign will be in place and the next stop would likely be the noted support zone in the low 1600′s.
The data simply must be shown to have improved markedly (as of yesterday, Tues. Dec. 4) come Friday’s 3:30 ET release. No ifs ands or buts.
Summary
It would not be my style to start making too loud a racket about risk now that the predictable damage is well in progress. Risk of a ‘normal’ correction was in play back in September as precious metals sector sentiment became over bought and over bullish. NFTRH noted as much at the time.
The correction became abnormal when the HUI lost 460 and with the CoT’s stubborn refusal to reverse. HUI-Gold Ratio remains a positive indicator as long as it holds its higher low to the mid-November low. Yesterday was a good start. Sentiment has improved as gold bugs have gotten more bearish over the last two months, but this negativity is not at an extreme, which it usually is important bottoms. Also, going just by eye, too many people appear to be trying to call a bottom.
The precious metals sector made some good signs yesterday, but there has been technical damage on the gold stocks and the metals are at an important juncture. The metals are positive today in pre-US open (12/5) in what appears to be follow through to yesterday’s positive signs.
But there is a big mess happening in Washington and we are still within the noisy time frame that has been expected into mid-December and the coming FOMC meeting. Risk management continues to be indicated as long as HUI remains below the neckline. Additionally, gold must hold the weekly EMA 35 to avoid a date with the low 1600′s and it must hold the Ascending Triangle in Euros to remain bullish there.
We cannot predict the future, but we sure can use simple parameters to manage risk. On the bigger picture, we are watching for an ‘inflationary’ rally to continue in the broad markets, but putting aside whatever unofficially official manipulation may be happening in the precious metals, monetary data like adjusted money supply will eventually tell the tale. There is a man named Prechter, and he talks a lot about the undeniable forces of deflation. The US dollar looks sick and this could anticipate an inflationary attempt, but let’s just keep an eye on the Fed and its ability or will to inflate the real money supply.
Risk management is always in style, especially until some of these parameters start becoming more clear and/or we get through the first half of December in good shape.
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