All the pieces are in place for a major uptrend in gold to begin right away, and it appears to be starting as this is being prepared. The Commercials have cleared out virtually all of their short positions, for a massive profit of course, meaning that the slate is wiped clean for the game to start over anew. Public opinion and sentiment towards gold remains rotten, which is exactly what you expect to see at a major low, with the investing public at large, having been duly “educated” by the mainstream media, harboring a negative attitude to gold and if anything inclined to short it. Lastly, seasonal factors couldn’t be better – August and September are traditionally the best months of the year for gold.
On its 1-year chart we can see that gold had already broken out of its steep downtrend in mid-July, since which time it has been held in check by its falling 50-day moving average, which is now starting to flatten out, so that a bull Flag appears to have formed as the price retreated back along the top of the trendline that it had earlier broken above. This Flag implies another upleg, which appears to have started this morning, and this uptrend could really gain traction soon if the price breaks above the nearby resistance shown, given the huge speculative short positions that have built up and the consequent potential for massive short covering. The gap between the 50 and 200-day moving averages provides a measure of how oversold gold is. Of course, breaking above the strong resistance at the earlier major support in the $1550 area that failed back in the Spring will be a tough nut to crack, but we will have to see how gold shapes up approaching it, in order to assess the chances of an early breakout above this key level.
The Hulbert Gold Sentiment chart that we have used in the past is no longer available on www.sentimentrader.com the reason given being “Due to a request from Hulbert Financial Digest, the publishing of this chart has been temporarily suspended.” Maybe Big Money has been leaning on people – after all they wouldn’t want ordinary investors having access to information that might enable them to make decisions that turn them from habitual losers into winners. Perhaps in the future, if you want any useful charts, you will have to compile all the data yourself and make them from scratch, assuming the data itself isn’t rigged, of course. By that time I will be retired and able to laugh about it all – unless I follow Richard Russell’s example.
The latest Public Opinion chart shows that the public still hold a very low opinion of gold, and that has to be bullish.
The Rydex traders are upholding their time honored tradition of providing an excellent contrary indicator – keep up the good work lads! …
The gold seasonal chart is most encouraging as it shows that we have arrived at the most seasonally bullish time of year for gold. With the middle of August approaching it’s high time gold started rallying – and this morning it is.This positive seasonality continues through to mid – end of September.
Thus it is interesting to observe that the dollar has been rounding over gradually beneath a “Distribution Dome” on its chart, that developed following the sharp rally in mid-late 2011. While these Domes sometimes abort, that is to say the price breaks out upside from them, the only circumstance likely to cause that would be a sudden deepening of the crisis in Europe. While that is possible, the chart looks bearish at this point, especially as a bearish broadening formation or bullhorn pattern has developed on the chart in recent months. Here we should note that were the dollar to rally because of more strife in Europe, it wouldn’t stop gold from rallying – it is not generally realized that the dollar and gold sometimes rise in tandem. We should also note that if the dollar does now weaken, it is likely to be some months before the significant support in the 78 – 79 area gives way.
Meanwhile Adam Hamilton has written a timely article some weeks back highlighting the potential for a massive short squeeze in gold. While it helps to take an acid tab an hour or so before looking at his charts, he presents a convincing case, and it certainly looks like a blistering rally is not far over the horizon. This is good news for bulls, as it means that gold should have less trouble taking out the strong resistance at the April breakdown point than would otherwise be the case.
In conclusion we appear to be right on the doorstep of the next major uptrend in gold, silver and the PM sector, which promises to be really big, like the late 70’s only a lot more spectacular. Rising interest rates won’t stop it – on the contrary rising rates will feed it just as in the late 70’s because rising rates won’t attract people to bonds if their price is collapsing. Most investors will miss out on it, as usual, as a result of being burned by the preceding correction, and worries about that downtrend continuing, played up by the still negative media. They will turn up in droves many months down the road when prices will be much higher.
We have already looked at the bigger gold and silver stocks on the site, and the main leveraged ETFs. Soon we will be looking at options strategies involving the main ETFs and big stocks, designed to leverage gains from the uptrend. This is, believe or not, a much safer and more reliable way of achieving performance than dabbling in dodgy juniors, which or may not partake in the rally, and can collapse at any time, almost without warning.