THE MICIK MARKET LETTER
Gold Update
Alan Micik snippet
May 10, 2012
MML wrote the following for subscribers on April 29, 2012 (GLD @ 161.38):
Last week, both GLD (161.38) and SLV (30.37) hit their respective supports (158.21 / 29.78), on FED day, at the same time.
That’s important, because their corrections were, therefore, “in sync.” This was GLD’s fourth test of this support, and for
SLV it was the first test. For the GLD bullish case, GLD may have “hung around” its support level (158.21) far longer than
normal awaiting SLV to complete its’ normal correction at 29.78. Therefore, if the bullish case is to prevail, GLD must now stay
well above 159.20 since SLV is presumed to have a completed correction. This is the “benefit of the doubt” scenario for GLD,
and no action is required.
The cautious view of GLD’s action would be that a fifth test of <159.20 GLD would likely produce a major downside break in
gold well below $1600 based on MML’s experience. The reason we state this is because markets do not normally give multiple chances to buy at a great price unless it’s not a great price, i.e., it’s a market trap. We have rarely seen any market withstand a
fifth test of such a key and obvious support.
For GLD, we now observe that the bulls have moved back to 81% on one reading, and 80%+ readings have consistently produced
sharp drops since the September, 2011 high. Overall, those sharp declines began within 2-12 days after the extreme readings were
in evidence, with an average of around 7 trading sessions (from this last Friday’s reading). For example, 3 days before February’s
high we reached a reading of 79% bulls… the fourth day saw gold drop of $100 in one day, in a disorderly manner. During the
4th quarter of 2011, we observed readings that reached spectacular 85-95% bull readings before the sharp declines (there was
endless bullish exuberance in the gold market at those times). So, for now, the more normal 80% sentiment reading is the red flag,
as it is in most markets, as it was at February’s gold high, and as it is today.
Recently, we posed this question and it still causes us concern:
“Why are the various gold ETF holdings still near record levels? If we eyeball the GLD chart we can readily observe that
since August of 2011, 85% of GLD buyers are now at a loss, and they have not yet sold. Will Mr. Gold Market move higher to
accommodate these high level buyers? Possible, but not probable. Should this group become urgent sellers, the impact on gold
would be serious as GLD Custodians would sell their physical gold into the market regardless of price.”
Another way to reflect on this is that from the Spot gold low of $1614 in early April, we have rallied to $1668, a tiny gain of
just $54, but we have once again produced 80% bulls in the process. This is bearish, as there would be fewer participants left to
convert to bullishness and drive the price significantly higher. With 80%+ readings occurring at successively lower price levels,
there has been no “capitulation” phase (yet) by the majority. The Gold ETF’s holdings confirm this because they remain within
1% of their record March highs, yet the price is lower. That tells us that a capitulation phase is yet to come, just as it lately has
in silver.
Gold’s Bottom Line:
As long as GLD stays above 159.20, GLD deserves the bullish “benefit of the doubt.” Also, SLV is hinting at an up move, so this may be supportive for gold. Nonetheless, on any move under 159.20, MML will now “hedge.” We have always
recommended deep in-the-money puts for “hedging,” and that approach continues (1 Put=10 Ozs. of physical gold). An
alternative approach is to purchase DGZ (non-leveraged gold bullion bear ETN), or DZZ (2X leveraged gold bullion bear ETN-
well managed). Avoid double leveraged GLL as it erodes too quickly (poorly managed). Each subscriber elects the
implementation strategy that is appropriate and suitable given their individual risk profile.
***
MML sent subscribers a Gold Update this week as we “hedged” 50% of our physical gold at 159.15 on 5/3/12. This Update
covers our immediate gold forecast, describes what we believe the Goldie’s performance may be telling us regarding gold, and
what it may take for a low in both gold and the Goldies.
If you would like to review our current MML forecasts for gold, silver, the $U.S., $U.S. Stocks, or $U.S. Bonds, do consider a
trial subscription (details are listed below). In deference to our subscribers, we have an 8 trading day “Quiet Period” from all
Updates before any Posts.
###
Al Micik
email: atmmail@sbcglobal.net
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