In the sci-fi classic The Day the Earth Stood Still, the extraterrestrial scientist Klaatu demonstrated the technological prowess of his civilization to the bellicose citizens of Earth by making every powered device on the planet stop working for an hour. On Friday, one could have imagined that Klaatu was back, this time training his dark magic on the New York Stock Exchange. With the ticker tape crawling at the pace of a centipede after knee surgery, even Hidden Pivots seemed to be working in slow motion. Friday’s obligatory headless-chicken act popped the Dow slightly above one such pivot shortly after the opening, implying that an additional hundred points of upside was possible. Four hours later, though, the Indoos were still oscillating aimlessly within an unnaturally tight 30-point range. 

Gold futures turned just as moribund after spiking briefly in the early going. The bulls got winded quickly, sending the April Comex contract into a sharp dive. But the kamikaze threat stalled a few dollars shy of a 652.50 threshold that would have created a bearish impulse leg on the hourly chart. Our short-term forecast for gold had been bullish, but there was nothing in Friday’s price action to reaffirm the positive signs we’d seen in the run-up since mid-March. However, technically speaking, gold's weakness did only minor damage to a picture that I would still rate as mildly promising.

Seldom Mistaken

That said, I heard from two particularly astute gold bugs yesterday whose hunches have seldom proven wrong -- and both are bearish on bullion at the moment (albeit for different reasons). “I have so many reasons for being suspicious of gold at this point, and I am inclined to wait until I see the whites of its eyes,” wrote Phil D, using a battlefield metaphor that many of us do not need to have explained.  “When the yield curve starts to straighten out and steepen I think I'll get back in. For now I'll just watch this coy market.” In a later note, he added: “My caution is not so short-term (mainly because I don't have much confidence in my ability to predict short term), but more of a hunch about what needs to happen for the correction we've seen since May to finally run its course.”

My other correspondent, Charles C., was more specific about his current reasons for viewing gold with particular caution: “I am very cautious on the metals here for several reasons. One, the TFC commodity survey, which is informal but very useful, has the highest ratio of bulls to bears that I have seen. I would assume that the Daily Sentiment is very high, also. Two, gold has been up six days in a row and invariably, that is a danger sign. And three, the listed shares continue to languish on a daily basis. Goldcorp has a major gap just under $22 and I think it is going to fill it. If the Commitment of Traders is bearish again at the conclusion of today, it would be ominous.”

Spec longs were indeed down in the COT report released after the close, but not ominously so in our opinion. Although we remain cautiously optimistic toward bullion, the coincidence of two of our favorite expert’s experts weighing in on the bearish side -- on the same day, no less -- will cause us to monitor gold’s vital signs even more closely than before.