Metal Fatigue

By: Bob Hoye | Thu, Sep 17, 2015
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The following is part of Pivotal Events that was published for our subscribers September 10, 2015.


Agricultural prices (GKX) recorded an oversold at new lows at 280 in June. The short-covering rally drove it to 327 in only two weeks. It was the most overbought in a year.

It slumped to a new low at 273 and another oversold on Monday. A seasonal low is possible in early October and again in early November.

The most important thing is that GYK has been making new lows since the cyclical peak in 2011.

The GYX has been suffering metal fatigue since the cyclical peak of 502 set in April 2011. It became Weekly very oversold at 257 on August 24th. The rebound in base metals has made it to 280 today. This is at the 50-Day ma.

It could get briefly above. Copper can set a seasonal high in mid-September and the key seasonal low could be found in late November.

The next slide could again set new lows.

As we noted, crude oil can set a seasonal up in July and a seasonal down in late August. The rebound can be finished in mid-September, with the key low likely in late December. The chart has been tracking well.

On the bigger picture, our work in early 2014 concluded that after firming into around that June crude's price could begin a critical decline. The reasoning was that the post-bubble bear market in other commodities had yet to get crude. Within this was the probability that oil prices would get in line with the new price regime established for natural gas.

It had nothing to do with the Saudis trying to knock out US shale production. That was likely public relations stuff. After all, bureaucrats will say anything to maintain the appearance of being in control.

In gold terms, we expected crude to fall to around one-quarter of the high. The index of crude/gold rose to 84 in June 2014 and plunged to 34 in January. The rebound was to 52 in June and it was turned back by the 50-Day.

The next hit was to 33 on August 24th. As bad as it was, it was not down to the one-third of the high level.

The bounce in WTIC jumped from 37.75 to the declining 50-Day at 48 on Tuesday. In the nominal price, crude has further to decline and the full decline could take a year or so.

WTIC's high in June 2014 was 107. In round numbers, the one-third decline would be at the 35 level. The low on Black Monday was 37.75.

The full one-quarter decline would be to the 27 level.

Thermal coal price declined to 41 in June and has been holding 43 since July.

Met coal rallied from 83 in May to 90 at the end of June. It is now at 87.

Iron ore set a low at 51 in April and a high at 62 in June. The low in July was 51 and now it is at 58. Not getting hit going into Black Monday is noteworthy.

Of compelling interest, Carbon Emissions broke above the daunting 8.02 resistance level and made it to 8.09.

This page has always had a high regard for small mercies.

Precious Metals

When this sector's bear started we did not look around to see how long it would last. In 2011, the RSI on the silver/gold ratio soared to 92. Anything above 78 indicates that speculation had become dangerous. The only other time it hit 92 was in the fateful January of 1980.

All of this was reviewed many times and the conclusion was that the bear would not be as bad as that followed 1980.

They are all dismal and far too long.

The one after 1980 lasted for two years and seven months.

Post-1988, it lasted for two years plus eight months.

After the 1996 high the bear lasted for three years plus seven months. There was a nice low at 275 in August 1998 - at the 2 years plus 8 months count, but the LTCM disaster took the low out to 253 in 1999.

The count from the peak in 2011 is now an unrelenting 4 years.

Did we have to review all this pain?

Yes and we are looking for the bottom.

Gold stocks will need to be rising relative to the bullion price. The last one failed in May and the decline drove the Weekly RSI down to 19 on August 6. It was lower in 2013 but the bear was not ready to end then.

However, it is almost as bad as the oversold in October 2008. With the most dynamic part of that crash.

The time duration has been exceptional. The dynamics are now exceptional.

Over the past two weeks, gold stocks relative to the bullion price have been stabilizing. Considering the above two points this is constructive.

Gold stocks relative to the S&P are also very depressed.

Of course, this is widely known, but it is worth looking at clinically.

We will let the stability continue for a while and then update with some other ways of identifying the opportunity.


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Author: Bob Hoye

Bob Hoye
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