Gold Now Rising On A “Stairway Of Hatred”

On the heels of continued volatility in key global markets, the Godfather of newsletter writers, Richard Russell, put out one of his most import notes. This is a fantastic piece where Russell notes that the gold market is now rising on a “stairway of hatred.” The legendary writer also includes 7 key charts.

Richard Russell: “Friday ended with a late sell-off in the Dow, and some fireworks in the gold area. The real gold action was in the mining shares, which, because they are highly leveraged, tend to lead the actual price of gold bullion.

It’s notable that nobody talks or writes any more about the price movement in the market. 99% of everything written about the market has to do with the news and how it might affect the market. As a result, I feel all alone in writing about the action of the stock averages, and its implications.

For instance, I’ve described the “box” or the trading range that we now find the Dow in. What are the implications of a Dow break out above or below the trading range? In the meantime, what are the Transports and the A-D line doing? I search Barron’s for a column or even a paragraph on the price action but not a word. It’s all endless conjectures regarding what the Fed may or may not do.

When I first started Dow Theory Letters in 1958, technical analysis was unknown, and most market people called technical analysis “voodoo.” I feel as though I’m back in 1958 again.


Next, I want to talk about another forbidden and hated subject — gold and gold miners (my, how gold is despised these days).

I am going to show charts of some representative gold miners, and you’ll notice that RSI (relative strength) is, or was, in almost all cases below 30 which puts them in the oversold area. And note the bullish action of last Friday, which almost nobody has commented on.






Below, the ARCAgold bugs” Index



The AMEX gold miners index



What’s significant is that all these gold items saw RSI in the oversold (below 30) area, and all surged higher on Friday. Also, anti-precious metals sentiment was so black-bearish last week that I thought, along with RSI below 30, that we might, at last, have struck a true bottom in the precious metals. Of course, it’s always possible that after Friday’s explosion, the gold miners may back off this week and test last week’s lows.


Gold and Silver

Update 17th of June 2013

Gold Weekly Chart

Gold Daily Chart

Dow Jones/Gold ratio Weekly Chart

Arguments for lower prices:

  • Still valid MACD sell signal for Gold on the monthly chart.
  • Gold still in well defined downtrend.
  • If Gold moves below US$1,340.00 we should see a test of US1,320.00 followed by a break of the multi-year uptrend. Already hourly close below US$1,359.00 would be critical.
  • Investors still moving out of Gold ETFs. The SPDR Gold Shares Fund (GLD) is now holding only 1,003.53 tons of Gold .350 tons of Gold have been sold since beginning of this year.
  • During Fed Meetings Gold tends to be very weak.The next FOMC Fed Meeting will be held this week during June 18th & 19th. The rate announcement will be on wednesday 19th of June.
  • India increases tax on Gold imports again. This could cut down indian gold demand by up to 75%.
  • Although gold and silver performed contra-cyclical in recent months (when compared to stocks), the correction in equities could push down precious metals as well (risk off…).

Arguments for higher prices:

  • Gold seems to be working on some kind of double bottom. Confidence in a new rally is still very small therefore every attempt to rally is quickly being sold. But despite the recent sell off one week ago, gold is holding well above US$1,375.00 so far. As well US$1,340.00 has not been violated. Gold is producing first series of higher lows and higher highs…..
  • Bollinger Bands are tightening. Current range is US$1.361,87 to US$1,416.31. A big move is brewing.
  • Weekly SAR indicator gives a buy signal with a weekly close at US$1,423.00. This would be first buy signal since october 2012 !!
  • Potential W-formation shaping in gold. Confirmed if gold closes above US$1,480.00.
  • On the daily chart for the Dow Jones/Gold ratio the indicators MACD & RSI are not confirming latest new high at 11.30 points. Negative divergence points to a trend change!!!! Between mid of november 2012 and mid of may 2013 the Dow Jones Index outperformed Gold and the ratio went from 7.286 up to 11.297 points. The RSI indicator on the weekly chart for this ratio has never been more overbought since mid of 1999 !!!!
  • Strong positive divergences (RSI & MACD) in HUI Gold mining-Index increases chances that the bottom indeed is in place. Short-term we are seeing some weakness but after current minor correction the index should soar.
  • The latest Commitment of Trade (CoT) reports have improved again (especially for silver). According to sentimenttrader every time speculators were holding a combined position below 75,000 contracts Gold was on average 22.2% higher a year later. Personally I haven’t seen a more bullish setup anytime in the last 10 years. Sentiment continues to be at oversold extremes (Gold Public Opinion & Hulbert Gold still at multiyear lows).
  • If gold & silver should continue to move contra cyclical towards stock-markets, a recovery is in the cards as the stock-markets are starting to correct.
  • Germany changes VAT for silver coins. From 1st of January 2014 germans will have to pay 19% VAT on all silver coins. The new tax rate applies to silver bullion coins such as Chinese Panda, Australian Kookaburra, the austrian Silver Philharmonic and as well on silver collector coins. It could lead to a spike in silver coin demand in Germany until end of the year.

Declines in Gold Prices Are Not Over Yet

The fall in the price of gold has triggered a new run on physical gold that shows no sign of abating. Record amounts of money have exited ‘paper,’ i.e. futures and ETFs, and headed straight to the bank or the mint to be exchanged for coins and bullion bars — that is, if one can get them. The strength of physical retail buying has taken dealers and mints around the world by surprise, leaving them scrambling to keep up with demand. The sudden surge is evidence of pent-up demand, particularly from China and India.

There seems to be a growing disconnect between paper and real gold. It’s very likely that the paper sellers didn’t foresee the rush to physical gold. Could it be the case that the physical market is lagging behind and will eventually catch up and sell off too? Let’s look at some of the evidence.

Physical Gold, an investment company, said there were waiting lists of three weeks for some coins, and four to six weeks for gold bars whereas previously all would have been available within a few days.

The US mint had to suspend sales of certain coins as buying increased. It sold an estimated 210,000 ounces of gold coins in April — almost three and half times more than the 62,000 it sold in March.

The Perth Mint worked overtime over the weekend to manufacture enough stock to meet orders, which are at levels last seen in the 2008 financial crisis (confirmation of the 2008 – present analogy).

There are reports that both Istanbul and Dubai are out of investment bars, according to Bloomberg, with wholesale and bulk buyers paying a premium of between $6 and $9 an ounce for kilo bars.

A US coin shop said that sales of Krugerrand have increased 468% last week as investors rush to get the precious metal at what they see as a bargain rate.

The Financial Times wrote that Asia is witnessing one of the strongest waves of physical gold buying in 30 years. “Buyers Scour Asia for Physical Gold,” proclaimed the headline.

Swiss refiners have run out of kilo gold bars (cost: around $48,000). There is now a one-month wait for delivery.

Physical stocks of gold held at CME Group’s (NASDAQ:CME) Comex warehouses in New York have dropped to a near-five-year low in a further sign that gold‘s price crash unleashed a frenzy of demand, according to a Reuter’s report.

Well…you get the point. The gold bugs are coming out of the woodwork and they want the kind of gold they can bite between their teeth. World over, private investors have taken advantage of the dip to pounce on physical gold. Keep in mind that there is some effort that goes into buying physical gold. It’s not like placing an order online for the purchase of ETF shares. Most physical gold buyers are not in it for the short term — they plan to hold on.

At my firm, we have always advocated physical gold over the paper kind for long-term investments. If your investment time horizon is more than a year, you want to purchase the physical metal, not somebody’s promise to pay you some money down the line based on the price of the metal. For short-term trades, however, ETF shares are OK.

To see what is in store for the price of gold in the following weeks, let’s turn to the chart section. We will start with the yellow metal’s medium-term chart .

A closer look shows us that gold has actually corrected to its previous support level (declining, dashed line) and verified this as resistance. At this time, it could just be a pause within a rally, but generally the main short-term trend here is down, although we have had a correction of about one-half of gold’s recent decline. It seems now that the move to the downside will continue and the RSI suggests this is clearly possible.