Dow Theory Update for July 22: Secondary trend for gold and silver turns bullish

 Primary trend remains bearish, though.

Eric Sprott and the physical gold market conundrum

Eric Sprott has just published in Zero Hedge an in-depth analysis of the gold market, and the causes of its decline. Some of the conclusions read as follows:

 

“Given the strong physical demand, we think that this decline was engineered by a bullion bank that flooded the COMEX (paper market), only to then redeem physical gold from the various available sources at depressed prices (i.e. ETFs) (…)”

“It now seems that bullion banks are in desperate need of bullion, as evidenced by the increasingly negative GOFO rates we are seeing (Figure 4 below). Remember that a negative GOFO rate signifies that the bullion banks are ready to pay holders of physical to lease their gold, in this case for a month. Historically, negative GOFO rates have happened in very few occurrences”

"In our view, the bullion banks’ fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available."

However, at the risk of tiring readers of this Dow Theory blog, you should heed my usual caveat, namely, when dealing with any “fundamental” opinion, so should put it into a “secular” context, as explained in my post “Secular trend versus long term trend”. Fundamental opinions are not to be traded, not even under the Dow Theory.

Stocks

The Industrials and the SPY closed up. The Transports closed down.

The primary and secondary trend is bullish, as explained here, and more in-depth here.

Today’s volume was lower than Friday’s, which is bearish as overall higher prices were not joined by stronger volume.

Gold and Silver

SLV and GLD closed up. The primary trend is bearish, as explained here and reconfirmed bearish here.

The secondary trend turned bullish today, which is tantamount to saying that today a secondary reaction against the primary bear market has been signaled by the Dow Theory.

Here you have an updated chart. The blue rectangles display the ongoing secondary reaction.

Snapshort of a secondary reaction against the primary bearish trend for SLV, and GLD

 

Tomorrow, I’ll post a special issue on this Dow Theory blog further examining the entrails of the new secondary reaction in silver and gold. Readers of this blog, stay tuned.

Please mind that a bullish secondary trend is not enough to turn me bullish in order to make a commitment on the long side. Thus, as I said when analyzing GDX and SIL bullish secondary trend, the time for fireworks has not arrived yet. The primary trend must turn bullish to do so. Don’t forget that many market pundits have been repeatedly proven wrong when trying to time bottoms.

However, the fact that both the precious metals and their miners are both in bullish secondary trends, is a good sign. Nonetheless, according to the Dow Theory, I will wait until the primary trend turns bullish.

GDX and SIL, the gold and silver miners ETFs closed up, and bettered the last secondary reaction closing highs. 

The primary trend is bearish, as explained here and reconfirmed bearish here.

The secondary trend for GDX and SIL is bullish, as explained here.

Here you have the figures for the SPY, which represents the only market with a suggested open long position.

 

Data for July 22, 2013
DOW THEORY PRIMARY TREND MONITOR SPY
			SPY
Bull market started		06/24/2013	157.06
Bull market signaled		07/18/2013	168.87
Last close		07/22/2013	169.5
Current stop level: Bear mkt low			157.06
Unrlzd gain %	Tot advance since start bull mkt	Max Pot Loss %
0.37%	7.92%	7.52%

Sincerely,

The Dow Theorist