Risk Management And Gold Wipe Out

The damage to precious metals began back in November, when the critical 460 support level was broken on HUI. Anyone who did not acknowledge that the violation of this level (the neckline to the 2011 topping pattern) was important - or as NFTRH called it “abnormal” to a bullish case - was looking through rose tinted glasses.

After that came a bottoming attempt, a failure in January, numerous bottom calls from around the gold analyst spectrum and a series of bear flags that served to reset over sold status just enough to fuel each new plunge.


The first inkling of the most recent warning sign was noted in real time in this NFTRH update. There is also a target of HUI 250 in that update. This target has been on watch for months now, as has another at 100. It has seemed improbable, but for its measurement off of a massive topping pattern. 260 is a 62% Fib retrace of the entire secular bull market. A trend line goes through the low 200′s. 100 is a cold, hard measurement.

To be ready for these targets, you need to be intact. Here is the key excerpt from last week’s update linked above. It is all about discipline, not hope.

I have used a combination of selling, cash raising and bear positions to squeeze out a small gain thus far this week. But it gets tiring compared to the comfort of simply sitting in cash, which has been the recommended risk management position for most people. If the HUI continues to look as bad as it does now, my goal is to sit this one out as long as necessary. We will keep tabs on what I think is going to be a great contrary play, but we will not force it. We should let the technicals guide.

So wearing an unbiased technical analyst’s hat, we have a bear flag in the making. If it breaks down, HUI would lose the 50% secular bull retrace level, which is also the 62% cyclical retrace out of 2008. 250 could easily be next up, as there is notable support there, just below the 62% secular retrace level.

Why Manage Risk?
It is upsetting to see how many people maintained trust in the gold stocks. It is a sector that I believe suffers from way too much stagnant ideology and dogma. I also think the sector is supported by people who are generally good, and have a sense of right and wrong. They are in a monetary revolution against corrupted and powerful entitiesl.

What Now?
When the action becomes impulsive as it is now, never mind the targets. Watch the action. Right now the action in gold is startling, but it should not be surprising. When you invest in gold you understand that you are buying value, and that you are committing to revolt against an entrenched system.

I sit in 100% cash (outside of one stock market short position), looking forward to a buying opportunity that could be a big one. I feel uneasy because I know lots of people just wanted to set and forget it. NFTRH even lost subscribers over the years who were gold bulls that did not want to hear the frequent updating/revising, and the mental whipsaw it can induce.

'Buy and hold’ is tough enough in the regular markets, but in this market, the intensity of the swings can be white hot.

Bottom Line
Unfortunately, this is not your grandfather’s market. Gold especially is a monetary instrument that would shine a negative light on current policies. It is a digital and connected age, where anything is possible in the short-term.

That “anything” is now happening. This most recent and climactic destruction began with one simple little creep by the Gold Bugs Index out of a little bear flag. But the greater down trend began last November, with a technical violation of an important support level.