The Discounting of Gold based on changing Fundamentals and Gold Miners
This is a post from Wolf on Wall Street from just a few minutes ago mainly looking at gold miners/GDX/NUGT.
As mentioned, gold should be one of the first assets showing a change in character, oil and VIX futures as well so I’m keeping an eye on them.
With open GDX September calls, I’m also watching those closely, in GDX’s case, there’s a VERY high probability that today’s move is taken as a head fake move, either by design or by chance of opening below support and offering an opportunity to be accumulated there. Based on the divergences or lack of them in gold, this looks a little more like a “fundamental move”, which simply means not part of the typical “set-up” market cycle which we see when new information comes in to the market that the market had not already discounts, it is discounted on the fly and that is what appears to have happened in this situation.
Like Gold futures, the initial opening indications in GLD are more positive than price would suggest, a positive divergence.
This is the 1 min Gold futures, the plunge in gold overnight is essentially the discounting of new (Fundamental information on Syria) as the situation has changed dramatically from a possible/probable strike to a likely diplomatic solution.
With the positive divergence forming, that would suggest gold was discounted to a point where smart money feels it’s now “Cheap” vs fundamental events and seems to be accumulating at this price.
The 5 min chart is the smoking gun for me as far as the move in gold being a “Fundamental change in the Syrian situation” that was not expected and thus not discounted by Wall Street. Certainly by looking at the number of Russian naval vessels in the Med right now, it does not appear they are there as part of a diplomatic effort, so effectively this new diplomatic push is the new information (fundamentals) that have changed.
By looking at the 5 min gold futures from the left, there’s a large positive divergence at cheaper prices, this would be the accumulation phase for gold and the next move would have been mark up until the fundamentals changed suddenly. We don’t have a positive divgerence here yet as it’s just getting started on the 1 min chart, if it is real and strong enough it will make it to this 2 min chart.
GDX has a nice flat range, this is typical of accumulation and the reason, along with the 3C divergences, that I liked/like GDX or NUGT long. The move below support today could have been part of a fundamental discounting mechanism, but also a head fake move is typically the last thing we see just before a reversal (upside) in at least 80% of all reversals so it would not be unusual to see this as a head fake move and GDX still being bullish, there were enough stops hit on the move to make it a credible head fake move.
GDX 3 min is still in a very positive place so thus far even with the move down, it appears from the intraday chart above and slightly longer that the move down this morning is under accumulation, this is how we distinguish a bullish head fake move from a bearish break lower.
GDX 10-min is beyond the scope of today’s trade thus far, but it looks fairly plain to see that a bullish cycle in GDX has already been set up (the accumulated position has already been put together), I highly doubt this position is abandoned with all of the commitment already in place.
GDX 15 min is not in proper scale as 3C is not an oscillator and numerical values don’t matter, the point being in proper scale which oscillators are pinned to, the entire 15 min leading positive divergence would be above price. The chart rescales as a lower price is put in, but the divergence is still present and in fact has grown exponentially recently as is often the case as an accumulation cycle is nearing the end to move to stage 2 mark up.
NUGT (3x long GDX) is also showing accumulation of the discounted price or “head fake” move this morning on this 1 min intraday chart, so that is good and in line with what we are seeing elsewhere.
The 3 min chart shows the same divergence so it is fairly strong for being this early or right off the open. It appears lower prices are either part of a head fake move or are just irresistible at this discount, I suspect there’s probably a bit of both in play.
I used DUST (3x short GDX) which is the opposite of NUGT to confirm, the 1 min is leading negative as it should be
As is the 3 min, meaning the distribution on the open or profit taking also confirms GDX/NUGT.
So far so good on GDX and NUGT, whether a real head fake move which is hard to say because of the fundamental re-adjustment in gold or whether the discounting mechanism overshot and now makes these prices very attractive, we”ll keep monitoring the divergences for the signs of an imminent move.
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