Metals – Bottomy not confirmed bottom

There’s been noise in the financial news about gold being hot again and about how it’s all rosy and time to jump on in. I’m not so sure.

Metals are fairly volatile, and gold / silver especially can be jerked around by Central Banks anywhere in the world deciding to buy or sell a few dozen tons. So the charts are more bouncy and harder to read. Yet the rules don’t change much.

So let’s look at a metals chart, then zoom in a bit on gold.

These are Exchange Traded Funds, and an ETF is not exactly the same price behaviour as the commodity, but they try to track, closely. I compared a 1 year GLD chart to the 1 year gold commodity chart here and they are the same basic shape and almost the same numbers. Just a small partial percent off (and that may be the graph precision).

To me it looks like it is trying to set a bottom, but it isn’t confirmed yet.

First up, the ‘long chart’ for the long view. In this case, a 5 year weekly tick mark chart.

Metals.  GLD gold SLV silver JJC Copper JJN Nickle and UDN inverse $ Strength 5 Years

Metals. GLD gold SLV silver JJC Copper JJN Nickle and UDN inverse $ Strength 5 Years

First off, price trend for the main ticker, gold, is continuing to bounce along the underside of the SMA stack. As this is a 20 count of 5 day weeks, that’s a stack of 100, 200 and 300 days. The SMA stack has not rolled over to ‘normal order’ and remains inverted. The Trade Rule is to sell at the SMA stack on a return from below to inverted stack (and to buy on a return to the SMA stack from above when in normal order… see the action in the first year of the chart. During “topping weaves” where the stack is mixed, I shift to shorter time scale graphs and trade the faster flips.)

Silver (that’s the yellow line on this graph with the big spike at the start) has a more volatile character. It had that “bubble story” back when, and then has fallen more during this downturn. It’s clearly still ‘on the bottom’ and that little flip up at the end is inside normal volatile range for it.

JJN is a key industrial metal. Used in everything from stainless steels to batteries. Along with JJC Copper they move with sales of houses, cars, electronics, bikes and you name it. Both of them are down, headed down, and not having a blip at the end. So this isn’t an industrial demand story for silver nor gold in that end flip. It’s likely a fear story based on The Fed or China. Fear is a fickle master and a worse story…

PPLT is a Platinum (physical) ETF. It’s in a long term slide just like the other metals. Industrial demand for catalysts is not high. (And in an earlier posting we saw that mineral catalysts will likely reduce demand ‘going forward’ anyway). It is also used in Jewelry. We’re not seeing a lot of demand for either of them reflected in this price.

Finally, I’ve put UDN the “Inverse Dollar” ETF on here. (UUP is the positive dollar bet ETF). It is the deep gold line going across the middle from left to right with a downtrend. It is there to give an idea of the degree to price stability in non-$US currencies. Clearly a fair amount of the price slide in metals matches the degree of $US strength (i.e. the ‘inverse dollar’ is a rough match to metals slope showing what a non-$US currency would look like in constant ‘whatevers’ as the $US got stronger).

So on a global price basis, metals are not saying much. In any given local currency, the price slide might well not be a slide at all.

But notice that in good times metals tend to run above the $ while in bad times they tend to run below it. Right now most metals are below it.

So overall this chart says to me that on a longer term basis, the economy is not demanding a lot of raw metals, catalysts, jewelery, etc. etc. and that the $US is being seen as about as good a safe haven as gold at the moment.

RSI did have a ‘near 20’ moment about 2 years back and slowed the decent, but is still just wandering near the midline. (An example of that harder to read chart with metals). Not saying much at all.

MACD is cleanly staying below zero and with alternate swaps of red / blue on top as price wiggles. A time for fast trades in a down trending market, not buy and hold.

DMI has gone to ‘blue on top’ and might be an early indicator to buy, but for the very weak ADX (black)line at below 15 showing very little strength to any direction.

Overall, a lackluster indication of weak price movement in a generally down drifting commodity (that is likely flat in other currencies).

Now let’s zoom in on the 1 year view and see if we get any faster indications.

The One Year Chart

Metals 1 year daily prices for GLD, SLV, PPLT, JJC, JJN vs $US inverse

Metals 1 year daily prices for GLD, SLV, PPLT, JJC, JJN vs $US inverse

Here we can see more rapid trade swings more clearly. As metals are very volatile, the red / blue swaps of indicators can happen often even if the overall trend (from the longer view above) has continued down. Don’t get caught by thinking volatility swings indicate a long term trend. (Something Global Warmers need to learn too…)

The Nickle ETF in particular is prone to sporadic spikes down (about quarterly) and you could likely make money putting in lowball ‘buy if touched’ orders then selling when they are hit and return to trend. (Finding the cause of those spikes would help the timing…)

PPLT and Copper have been roughly following each other and Chinese demand stories. Looks to me like ongoing industrial weakness showing.

On this time scale, gold has crossed the SMA stack that is trying to take normal order, but look back at the start of the year. Being volatile, it does that often. As does SLV.

Price needs to continue this 3 month rise, the SMA stack needs a clean roll to normal order, and then price needs to return to the SMA stack from above and fail to penetrate it resuming the upward move. That will confirm a bottom is in. Until then, you could just be in the same thing as the 3 month run up from November to January at the start of the chart when prices run up on Christmas demand for trinkets. So a nice seasonal trade is likely available, but I’d not be putting coins in vault for long term just yet.

RSI has done a nice ‘near 20’ then a ‘higher low’ and now is cleanly over the centerline. Bullish.

MACD is cleanly over zero and with ‘blue on top’. Bullish.

DMI is “blue on top” and with ADX gaining strength at about to pass above 20. Bullish.

All in all a nice “go for the trade” indication (but the ideal entry was early Sept. with that ‘higher low’ on RSI and MACD doing a “failure to advance to the downside” turning to blue on top and crossing zero.

Personally, given the fickle nature of governments, central banks, and metals, I generally don’t trade them much and would tend to avoid this market. Mostly I think it tells you useful things for other trades. But, were I to trade this, I’d wait for that “failure to punch through the SMA stack to the downside” confirmation before wading in.

Then again, I’m more of a timid trader who doesn’t like too much ‘thrill’… As usual, YMMV, it’s all up to you what you do, I’m just talking about how I read charts, etc. etc.
Subscribe to feed

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , , , , , , . Bookmark the permalink.

2 Responses to Metals – Bottomy not confirmed bottom

  1. pyromancer76 says:

    And you think you are in semi-retirement! With a post like this — among those in all the other subject matters in which you have offered enlightenment — your efforts are more than full-time. We get to relax our due diligence here and put our effort in other areas. You make it look so, so easy. Of course, there is always the recompense — not much for blogging. Anyway, a big thank you and I sent a small addition to your “semi-retirement” income.

  2. E.M.Smith says:

    @Pyromancer76:

    Thanks! Though at the moment that fund is more of a “buy the next iteration, likely a Cubieboard, for the ‘make a secure computer’ posting project”… I’m not good at the whole ‘retirement’ thing ;-)

    With “posts like this” my goal is simple, but has 2 steps.

    1) When I’m seeing financial hype “in the news flow” get a clear way to look at it posted so folks have a handle and are not handled…

    2) Help teach folks how to read this kind of chart and what it means without them having to spend a decade or two at it like I did… ( I hate waste… any kind of it…)

    It adds a simple kind of discipline to the whole process. Some missing context from the “up today, down yesterday, highest this month, down for the year” whipsaws of the Nightly News…

    I also find the same ‘understanding envelope’ useful for looking at temperature data where you see the very same cycles in cycles, with massive drops and pops, and where “start and end cherries” set whatever trend you like. Having stared at this kind of chart for a few decades now, when I first saw a “warmest ever” temperature trend chart my hard core sceptic button was firmly pressed. Same kind of crap peddled in both fields. “Look, gold up … highest in 3 months!” and “warmest Sept in a decade” are exactly the same fraud. For the same reasons.

    So in a very small way I hope that some folks will come to “listen to the charts” and get the same ability to call “Bull Shit” at similar temperature charts…

    Plus I need to know for myself if it is time to buy a chunk of gold… or not. I lean toward “not”, but the forces are unclear. Russia will be selling (as that’s one of their earners) to fund their adventures, but China will be buying to swap for US Treasuries… Decisions decisions… Thus, the discipline of the trade rules… You miss some ‘pick the exact bottom’ in exchange for very few “absolutely the wrong way” trades. FWIW, I have roughly a 100% record of “calling long term tops and bottoms in S&P 500”. That 10 year weekly chart is essentially infallable. My only errors with it come from lack of discipline to actually look at it each and every week. I’m sure some day there will be a Black Swan Event (maybe a war breaks out or…) and the chart will fail to predict; but it’s way better than anything else for setting Bull vs Bear context.

Comments are closed.