Red-Blooded American Gold Clot (GDX, GLD, SLV)

One of the most widely respected voices in the gold investment sphere is Doug Casey. Whether that respect is warranted or not is a separate question. But there can be no denying the man’s word carries heft. For years he moved the junior gold mining market with his calls on companies like Gran Columbia, Chapleau Mining and countless other explorers and beginner diggers.

We don’t follow him as closely as we did twenty years ago, when we were foolish and feverishly betting on every move of the Vancouver penny-casino, but last week there was a headline attributed to Dougie that caught our attention like a door slamming on a prison cell.

It was on the Kitco website, and it read like this –

Gold Manipulation Allegations Ridiculous – Doug Casey.

Hmm…

A little surprising.

Why?

Well, we never expected to find Dougie so far on the ‘realist’ side of the gold world. For our part, we’ve tried for years to dissuade our readers from engaging in fantasies about secret cabals at work in dark rooms, privately manipulating to their own advantage movements in gold (and who knows what else) to the obvious detriment of loyal, red-blooded, freedom-loving Americans.

hulk

As we’ve said many times before, the problem with this kind of thinking is that it warps one’s view of the trade. It keeps one hanging on for reasons that have nothing to do with the price movements and ever hoping for ‘justice’ and ‘vengeance’ and ‘payback’ against all those evil backroom villains who are holding back the great tide of winnings that you deserve. The result is that things are not sold when they should be, as many a goldphile who mistakenly held on for the last three years will tell you.

In any case, Doug Casey recently opened up on a reporter at the FreedomFest confab at the Planet Hollywood Resort in Las Vegas, who deigned to ask him about price manipulation in the gold pits.

Dougie was perfectly clear. He said, among other things, that he ‘consider[s] the very question ridiculous’.

If you have a chance, you gold buggerers, to listen the whole interview, we would recommend it. This is an apparent slap in the face to all the ‘true believers’ – and from one of their own!

Gold Leaders, Rise and Speak

We have to admit, we have a lot of fun with the gold crowd. And we hope that in all the poking and jesting that goes down, no one gets too injured.

Eric Sprott is another star in the precious metals universe whose voice commands attention.We at Normandy Research teasingly mocked him as a key contrarian indicator in two separate pieces over the years, and history proved us right on both occasions. The first was in a letter called Sprott Silver Price Says Sell from February of 2012, and the second was from just this past December, in a missive entitled Rules for Investors.

And what’s new from Sprott’s World today?

Well, for starters, the dude’s launched a new ETF, a fund that’s based upon the miners rather than bullion, and will track the Sprott Zacks Gold Miners Index. It’s set compete with the likes of the Market Vectors Gold Miners ETF (GDX) and Global X Pure Gold Miners ETF (GGGG).

The timing, of course, is always of great interest to us, coming as it does on the heels of a great deal of hoopla from the miners of late.

Here’s what the chart for the last six months looks like –

gdx

Let’s start the analysis with a look at price action itself. It’s been very impressive since the beginning of June, rising 25% in just six weeks to a recent high below $28. You’ll notice also that we’re coming very close to the long term (411-day) moving average, in yellow, a marker that should provide for some meaningful overhead resistance (red box).

A glance at the RSI readings from mid-June also show a stock that got a tad stretched (circled, in red).

And finally, we note that this is the first time we’ve come this close to the 411 DMA since October of 2012. Back then, the ETF also put in an overbought RSI read and spent the next 14 months spiralling lower toward its eventual bottom at $20.24 (insert, in blue).

Will it happen again? Will the death spiral of the gold miners resume?

Hard to say. But when you throw in Mr. Sprott’s precious metals timing indicator, we think that higher prices at this stage are less likely.

But wait! There’s more!

That’s not all.

The gold bullion market is also tanking at the moment, putting additional pressure on our friendly miners.

Here’s a chart of the latest activity in gold and silver –

slvgld

Monday’s trade was punctuated by an extreme selloff. By midday, both gold and silver had given back the last four week’s gains (red arrows, at top) and were approaching their bunched moving averages.

Even though SLV had been the more overbought stock going into the day’s trade, as evidenced by both RSI (in blue) and MACD readings (in red), the fall for gold was more extreme.

GLD’s RSI broke below her waterline. Not an outright bearish indication yet, but one that puts us on alert.

And that’s, of course, significant for the miners and Mr. Sprott’s new ETF, launched this very day.

But how to trade it?

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We are yet to take sides in the debate over whether the bull market in gold and its related investments has begun anew.

But we can say that the miners will have a very difficult time forging higher over the near- to mid-term.

And it’s for that reason that we’re recommending a sale of GDX CALLs to generate some premium.

Wall Street Elite recommends you consider the following trade – sell five GDX August 28.50 CALLs, each for $0.35, for a total credit of $1.75.
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We are yet to take sides in the debate over whether the bull market in gold and its related investments has begun anew.

But we can say that the miners will have a very difficult time forging higher over the near- to mid-term.

And it’s for that reason that we’re recommending a sale of GDX CALLs to generate some premium.

Wall Street Elite recommends you consider the following trade – sell five GDX August 28.50 CALLs, each for $0.35, for a total credit of $1.75.
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With kind regards,

Hugh L. O’Haynew, Senior Analyst, Normandy Research

See what people are saying...

  1. Rick Zivi

    Do you mean Sept calls?

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