{"id":24456,"date":"2014-01-08T08:00:09","date_gmt":"2014-01-08T13:00:09","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=24456"},"modified":"2014-01-07T20:36:26","modified_gmt":"2014-01-08T01:36:26","slug":"precious-metals-risk-management-to-opportunity","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2014\/01\/precious-metals-risk-management-to-opportunity\/","title":{"rendered":"Precious Metals: Risk Management to Opportunity"},"content":{"rendered":"

What Has Been
\n<\/strong><\/p>\n

A solid 2.5 years of risk management (to varying degrees) has been required of precious metals investors.\u00a0 It was most intensely required after the announcement of QE3, when the net commercial short position in silver began a relentless march toward a very bearish alignment in late 2012 and then the HUI Gold Bugs index lost an important support level at around 460.\u00a0 Here is the chart of silver with a heavy commercial net short position from NFTRH 215, dated 12.2.12:<\/p>\n

\"si.cot\"<\/a><\/p>\n

As for the HUI, NFTRH 215 also noted this on 12.2.12:<\/p>\n

\"As you know, NFTRH had been contentedly managing a \"normal\" and expected decline<\/em>
\nin HUI to the support zone (460 area) defined as the neckline to the 2011 topping pattern<\/em>
\nthat I thought could be a great buying opportunity. No sir, care to try again?\"<\/em><\/p>\n

The sharp rally into and through the QE3 announcement corrected as expected to the 460 critical support area.\u00a0 What was unexpected was the utter failure at this support zone.\u00a0 In the financial markets, always have some level of expectation for the unexpected and always be ready to manage risk against it.\u00a0 We have been doing that ever since.<\/p>\n

All through the worst of the precious metals correction we remained on the lookout for signs that the most fervent precious metals bulls had either given up the ship or been forced to walk the plank.\u00a0 Most recently, a deadly article appeared what seemed like moments after the Fed rolled over on tapering and maintained full QE in September.\u00a0 For a contrarian gold investor, this was a chilling moment.\u00a0 Here is the post noting as much:\u00a0 Scary Gold Bug Article, on Cue<\/a>.\u00a0 The article trotted out a veritable who\u2019s who in the gold \"community\" as if their final vindication and victory had been realized as the Fed declined to taper its bond manipulations.<\/p>\n

I happen to believe that gold is a timeless store of monetary value in a world gone monetarily mad.\u00a0 But these are the financial markets and joining a \"community\" or cheer leading an ideology can be dangerous.\u00a0 In reference to the article itself (With a Sling and a Stone<\/a>) we noted:<\/p>\n

\"This is the kind of thing that always gets punished.\u00a0 When the \"community\" starts congratulating itself for a job well done, a big hit is sure to follow.\u00a0 Every time.\"<\/em><\/p>\n

And so the punishment continued.<\/p>\n

What Will Be?
\n<\/strong><\/p>\n

Why do we manage risk?\u00a0 To be fully intact and ready when it is time to speculate.\u00a0 We manage risk against nefarious official and quasi official entities maybe, but more than that we manage risk against the herd's perceptions.\u00a0 In the case of the precious metals the herd has been absolutely obsessed with QE, inflation (money printing) and fears of the dreaded 'taper'.<\/p>\n

NFTRH<\/a> has been awaiting a tapering regime in order to start getting bullish the precious metals.\u00a0 There are real fundamental reasons for this, some details of which go beyond the scope of this article.\u00a0 But suffice it to say that the herd and its perceptions have been led astray once again by the evil genius that is the financial markets.\u00a0 The gold herd has been hoping for more of the thing (QE) that has gone hand in hand with so much pain for the \"community\".\u00a0 Or maybe more accurately, the herd has been dreading the thing (QE tapering) that could be its salvation.<\/p>\n

Gold bulls should want to see the Fed continue to taper out of the bond manipulation game and if certain gold-favorable Treasury yield spread alignments go along with a decline in our long term 'continuum' (below), opportunity will be at hand.\u00a0 An added bonus would be most gold advocates either having turned away from their shiny idol that seemingly did not work the way it was supposed<\/em> to, or quietly sitting in a corner sucking their thumbs, no longer having the stomach for triumphant declarations of victory against the forces of inflationary evil.<\/p>\n

\"tyx\"<\/a><\/p>\n

Gold bulls and especially gold stock<\/em> bulls should not fear the deflationary message that a decline in the 30 year yield from the above noted 100 month exponential moving average might portray.\u00a0 Rather, they should realize that the sector is now firmly counter cyclical and the yield, along with stocks, is cyclical to the growing economy.<\/p>\n

Inflation, as represented by the vertical black Monetary Base line below, has gone hand in hand with a cyclical rebound in corporate profits, the stock market and to a lesser extent, the economy itself.<\/p>\n

\"sp500\"<\/a><\/p>\n

Chart courtesy of SlopeCharts<\/a><\/p>\n<\/div>\n

If upside can continue with the green (profits) and blue (S&P 500) lines in the absence of the black line (which could theoretically decline if the Fed tapers its money printing in service to bond buying) then more power to the Fed and those who unquestioningly jumped into the risk pool at the behest of its policy.\u00a0 But if money supply starts to \u2018taper\u2019 off and profits, the stock market and the economy start to falter then we have\u2026 the counter cycle.<\/p>\n

The inflation has already been promoted and it has not included the precious metals.\u00a0 What we have in front of us now as I see it is one of two things:<\/p>\n

Thing 1:<\/strong>\u00a0 The banks become incentivized by the spreads between the ZIRP-pinned Fed Funds and the theoretical rise in long-term yields (again, note the EMA 100 on the TYX chart above) that a 'taper' regime would imply.\u00a0 This could 'get the money out there' to Main Street, delivering inflation to Mom and Pop.\u00a0 Inflationists talk about such a phenomenon driving up all sorts of cost of living items including oil.\u00a0 Unfortunately, inflationists are also talking about strongly rising oil prices as being the fuse to set off gold\u2019s next great moon launch.<\/p>\n

One might want to be careful about this line of thinking, especially if one is a gold stock bull because impulsively rising energy costs would not do the miners any good.<\/p>\n

Thing 2:<\/strong>\u00a0 The yield on the 30 year bond above does indeed turn down (with a component of 'sell the [taper] news' baked in?) into a counter cycle, complete with a potential whiff of deflation.\u00a0 But if short term yields decline in relation to long term yields \u2013 which would be expected in a counter cyclical 'risk off' environment, then the stage is set for a real bull phase in the precious metals and most notably, quality mining companies.<\/p>\n

There is so much more to write about this subject that is telling its story each week for patient people to interpret.\u00a0 Having already gotten long-winded, I'll simply note that much of the same ideology that got precious metals boosters into trouble in the first place is still out there making the rounds.\u00a0 I believe the odds are good that 2014 is going to introduce a macro pivot point that puts most people off sides, whether they be stock market bulls, gold bugs or inflation touts.<\/p>\n

NFTRH<\/a> does not have all the answers, but each week the service (weekly report and 'in-week' updates) refines the difficult questions and signals the markets present to make sure we are in the proper risk mode and ready for opportunity.\u00a0 Where the precious metals are concerned it has been quite a while since I have been able to talk about opportunity as opposed to risk management.\u00a0 I\u2019d be most pleased if you consider checking out this quality service with a successful track record<\/a> as opportunity may be upcoming.<\/p>\n

By:Gary Tanashian <\/p>\n

Biiwii.com<\/a> | Notes From the Rabbit Hole<\/a> | Free eLetter<\/a> | Twitter<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

What Has Been A solid 2.5 years of risk management (to varying degrees) has been required of precious metals investors.\u00a0 It was most intensely required after the announcement of QE3, when the net commercial short position in silver began a relentless march toward a very bearish alignment in late 2012 and then the HUI Gold […]<\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[23,4258,231,294,5005,2605],"class_list":["post-24456","post","type-post","status-publish","format-standard","hentry","category-general","tag-gold","tag-gold-miners","tag-risk-management","tag-silver","tag-silver-stocks","tag-speculation"],"yoast_head":"\nPrecious Metals: Risk Management to Opportunity - INO.com Trader's Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/wwwtest.ino.com\/blog\/2014\/01\/precious-metals-risk-management-to-opportunity\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Precious Metals: Risk Management to Opportunity - 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