[youtube:http://www.youtube.com/watch?v=Gi1WXYHHc2s 450 300]
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Welcome to the other side of the Catherine Wheel that is this current Precious Metal Bull Market. This is the side that crushes your limbs and threads your guts around a spindle-rod of molten steel. This is the side that dares you to jump to end the pain.
Seems a long way from last week, doesn’t it — when airy elation suffused your soul as a result of of daily 6-10% moves northward in your positions. You felt inner calm, you felt invincible peace. You priced Gulfstreams 650’s from your cubicle. You went out and were fitted for a new flowing robe of purest white ermine, with matching albino alligator sandals. ‘Fess up!
Well, get used to this queasy sea-change, ladies and gents, this is The Life of the PM Investor. Not everyone is cut out for it, as it takes a modicum of steeliness and cement-headed self-assurity. We are dealing with extremely volatile chemicals here, and it is only our good fortune that in this particular cycle they so often explode upward, instead of directly into our face.
The main tenet I’ve learned from this almost decade long period is that these things are almost impossible to trade, save at very extreme cycle beginnings and endings, which we will attempt to identify. Therefore, if you want to attempt to trade, I would advise keeping a “happy pile” of perhaps 15-20% of your stash, and using it to try to add to your more significant long term investment pile — your “treasure pile” for want of a better term.
Today’s move was unnerving, and unsettling. The good news is, we are quickly advancing to oversold on the major index — the Amex Gold Bugs Index, or $HUI, which I use as a guide for entry purposes. As you can see from this daily, we are perhaps a day or two away from a bottoming indication, as illustrated by the RSI stochastic:
We are also approaching support at the $535 level, which you may remember offered considerable resistance some weeks back. Now it should serve as a brake on our descent, just as it acted as an intransigent lid in the past.
Another indicator I watch closely in exigent periods like this is the U.S. dollar. It too is approaching a critical point in the RSI reading, this time on the overbought side. It looks like it will be very difficult for the dollar to break through $78, at least in the near term. You will note that that level also coincides with the dollar’s 50-day EMA, which has served as a resistance level in the past.
Dollars will print, my friends, until the Bernank thinks we are out of the deflationary woods. There are already too many out there, but no matter. Hang on, my various Sloopies.
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