From a liquidity flow perspective, this year is off to a fabulous start for gold bugs of the world.
A detailed look at the situation. Back in 2015, I received many emails of concern from amateur precious metals investors. What was the concern?
The concern was that analysts and hedge funds were betting gold would fall below $1000/oz. In contrast, I noted the tiny hedge fund exposure to commodities and issued a number of buy alerts for gold, silver, and an array of miners. What happened next? Most miners promptly surged 100%-300% higher.
Today, the situation is like 2015; after charging into gold and commodities around the 2020 high, hedge funds have steadily reduced their positions.
I’m also getting fresh “oil could fall” and “gold could fall” emails of concern from amateur investors. This tends to happen right before there are rocket launches for commodities and gold!
The long-term US stock market chart. The Stochastics oscillator is massively overbought and RSI is above the 70 level.
Also, the first week of trading for the US stock market was negative. That’s usually a sign that the entire year will not be good.
Tactics? My rough rule of thumb is that there should be a 20% price sale in play for the Dow before investors consider allocating capital into the US stock market. Currently, I would not be willing to buy US stocks unless there’s at least a 10,000 point drop in the Dow.
What about gold? Well, gold is not a hot stock for investors to flip for fiat profits. It’s not a business deal either, but it is the ultimate currency.
Gold is the ultimate cash. Fiat is the money of debtors and war worshippers. It’s an inferior product, and arguably an evil one too.
On the weekly chart, gold is consolidating a breakout over the key round number of $2000 and is now poised for a surge above the $2080 highs.
While the stock market looks set to tumble like it did in 1966 and 1929, gold looks ready to rally into the summer just like it did in 2016. There might be another week or so of consolidation, but after that, it’s likely “space helmets on” time for the metals and mines!
I’ve suggested that stock market investors should look for 20% price sales in the Dow before buying, but what about gold?
Well, because gold is a currency (and the best one), it can be bought more often than the stock market. A good rule of thumb for gold is that 5% price sales (about $100/oz) are to be bought.
What about the sell side? Gold can be exchanged for land but not much else. Gold is the ultimate currency and land is the ultimate asset. It’s that simple. Fiat schemes (buying the stock market, oil, crypto, miners, etc) should be used to get more fiat, and then that fiat should be parlayed into land and gold.
The daily gold chart. There’s no guarantee that gold goes to a particular buy zone but. The $1975 and $1920 zones are key lows and meet the minimum 5% price sale requirement.
Is it likely to happen in the current situation? The DXY (dollar index) 100 zone is in sync with $2080 for gold. It shows some decent inverse H&S action, and if the pattern plays out, investors could get a chance to buy gold at $1975.
I’m an aggressive buyer of gold, silver, and mining stocks at $1975, $1930, and $1810. At all these prices, I would expect significant Asian physical market demand to also come into play.
That demand tends to trigger aggressive commercial trader buying on the COMEX and LBMA, which are arguably the two main gold price discovery markets of the world.
What about the sentiment for the miners? The BPGDM sentiment chart. Gold stocks are not in the sub-30 buy zone and not above 70 in the sell zone. It’s a time for investors to sit tight and function more as spectators than players in the gold stocks game.
A look at the GDX (NYSE:GDX) chart. As expected, most senior miners paused at the $2080 zone for gold and $33 for GDX. The miners are working off a short-term overbought technical situation and getting ready to rally for most of what should be… a very golden year!