Can this Gold Rally Stick?

Gold is the best performing asset of 2016, up 15% since December 3, 2015.

For many this must come as surprise, at least that’s what we can surmise based on various sentiment gauges and headlines at the December low. Here are a few:

  • Bloomberg: “Hedge funds boost bearish gold bets to record as rate rise nears” – Dec 1, 2015
  • Kitco: “No reason to hold gold in 2016” – Dec 3, 2015
  • CNBC: “It’s going to get much worse for gold: Technician” – Dec 4, 2015

This wasn’t the first time the financial media (or hedge funds) got it wrong. The chart below captures CNBC’s top 3 most ‘brilliant’ gold calls.

Leading up to the December low, the Profit Radar Report had been carefully watching investor sentiment developments and published the chart below in the November 30, 2015 update.

Commercial hedgers’ net short exposure dropped to the lowest level in over a decade (since hedgers are by nature net short, it looks like a ‘high’ on the chart).

Unlike the media and hedge funds, commercial hedgers are the ‘smart money.’ It rarely pays to bet against the smart money, and the smart money was looking for higher gold prices a couple months ago.

That’s why the December 2, Profit Radar Report stated that: “There are three different bullish RSI divergences. The odds of a bounce increase with every tic lower. Hedgers decreased their short exposure further, which should bode well for prices.”

Despite being overbought, gold busted already through two resistance levels. This is long-term bullish.

Short-term, gold is near the next resistance level and is trying to take a stand against a pocket of bearish seasonality.

This gold rally has much more up side potential than the prior ones (which failed after 10 – 15% gains), but buying the dips appears more promising than chasing trade right now. Continuous gold analysis is available via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Why 2014’s Biggest Gold Rally May be Bearish for S&P 500

Gold just saw its biggest one-day gain of the year. At the same time the S&P 500 climbed to yet another 1-year high. Since 2009, this constellation happened three times, and led to short-term S&P 500 weakness every time.

Gold jumped 3.26% on Thursday, the biggest one-day gain of 2014. Ironically, such a display of gold’s strength is short-term bearish for the S&P 500.

Since the beginning of the post-2009 QE bull market, there’ve been three prior occasions when gold staged the biggest move of the past six months, while the S&P 500 (SNP: ^GSPC) traded at new 1-year highs.

All three instances are illustrated via the charts below:

November 4, 2010:
S&P 500 pulled back immediately.
Gold staged a minor pullback a few days later before moving higher.

July 22, 2013:
S&P 500 grinded higher for a few more days before a multi-week correction.
Gold meandered sideways/down.

September 18, 2013:
S&P 500 and gold pulled back immediately.

Gold’s performance is in line with what the Profit Radar Report proposed on May 28: “Gold broke out of the triangle and is approaching a general support zone at 1,255 – 1,230. A bounce from this zone to about 1,330 is quite possible.”

Thus far in June, gold bounced from 1,238 to 1,322.

Based on gold seasonality a bottom for gold may be in. But gold cycles and the lack of a real washout selloff suggest another new low.

Silver cycles are a bit more bullish than gold, that’s why the June 15 Profit Radar Report recommended to buy silver at 19.6 (silver spiked as high as 20.1 today).

Summary

Gold is getting closer to its initial up side target around 1,330 and the S&P 500 is at the up side target (1,954) projected by the Profit Radar Report back in January.

It’s too early to panic sell, but risk for gold and gold ETFs like the SPDR Gold Shares (NYSEArca: GLD) and the S&P 500 (NYSEArca: SPY) is rising.

Why is S&P 1,954 so important? Here’s why the Profit Radar Report pegged 1,954 back on January 15, 2014.

2014 S&P 500 Forecast

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Gold Rally – New Bull Market or Bull Trap?

KISS – Keep it simple st …. Sometimes the easiest analysis really is the most effective and accurate analysis. Here’s a very simple way to test if gold’s rally is for real, almost like a litmus test.

Gold is up 12.6% since the beginning of the year and gold ETFs, like the SPDR Gold Shares (NYSEArca: GLD) and iShares Gold Trust (NYSEArca: IAU), are back in vogue.

A 12.6% gain is pretty good, especially when considering that the S&P 500 (NYSEArca: SPY) is essentially flat over the same period of time.

Gold always polarizes. Some love gold (no matter what) and others hate gold (no matter what), but for those of us who just want to make money with gold, we simply ask:

Is this gold rally for real or just a bull trap?

We’ll take a look at two lines of evidence. One is anecdotal (and should put a smile on your face), but has proven indisputably correct. The other is based on technical analysis.

Anecdotal … surprisingly Accurate

The December 22, 2013 Profit Radar Report issued the following observation and forecast:

Gold sentiment is bearish enough to cause a sizeable bounce. Below are just some recent headlines:

Gold May be on the Verge of a Waterfall-Style Decline – Forbes
2014 Could be a Sequel for Gold and That’s Not Good – ETFtrends
Gold is Testing Last Ditch Support Before it Falls Further into the Abyss – WSJ
Gold’s Gimmer Gone, Mutual Funds Feel the Pinch – WSJ

We would likely buy on any move below 1,160 followed by a move back above.”

Unfortunately, gold didn’t quite dip enough to trigger our 1,160 buy trigger, but the excessive pessimism lifted gold prices as proposed.

Gold may have come full circle, as sentiment is now quite optimistic.

The March 16 Profit Radar Report read as follows:

“Perhaps there’s a new gold bull market unbeknownst to me, but generally the kind of optimism expressed by the headlines below is seen towards highs, not new bull markets.

“Ride the Gold Rally” – Barron’s
“Why Gold is Back in Vogue” – Yahoo Breakout
“Why Gold Appears Cheap and May Just be Entering a Bull Market” – MarketWatch
“How the Big Money is Betting on Gold Now” – CNBC
“Gold Losing Stigma for UBS, 2014 Forecast Increased” – Bloomberg

Sentiment doesn’t always work as an exact timing tool, but at this point it suggests that gold prices, the SPDR Gold Shares and iShares Gold Trust are closer to a high than a low.

Technical Analysis

In situations like this, the message of sentiment analysis can be greatly enhanced with the results of technical analysis.

Sentiment suggests that we may have to start looking for a top. Technical analysis will help us pinpoint where exactly (in terms of price) to look for a top.

A detailed short-term technical analysis for gold can be found here: Short-term Technical Analysis for Gold

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Gold Seasonality Projected This Sell off – What’s Next on the Calendar?

Central banks are buying gold, China is buying gold … and gold prices continue to slide lower. This doesn’t make sense if you’re following fundamental research. Seasonality however projected the recent drop. What’s next based on seasonal patterns?

Like a knocked out boxer, gold prices just can’t ‘get off the mat,’ and smart money gold traders have been selling into every rally.

Weak gold prices persist despite a weak dollar and a strong S&P 500 (NYSEArca: SPY).

Apparently the smart money doesn’t care that China and almost every other central bank in the world is (allegedly) buying gold (this reasoning is flawed anyway, more below).

The best hope for bullish gold investors might be a return of seasonal strength.

Below is a very unique seasonality chart specially created for subscribers of the Profit Radar Report.

It is based on actual gold prices, but can be applied to gold ETFs like the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and even the Gold Miners ETF (NYSEArca: GDX) and UltraShort Gold ProShares (NYSEArca: GLL).

The gold seasonality chart is created from averaging together 33 years of gold behavior.  But since gold is at a different price level every year, using just the average gold price would inappropriately skew the result by overweighting the years when it was at a higher level and vice versa.

To equally weigh every year, the price history is adjusted (using a divisor) to begin at the same level on the first trading day of every year.  Then each day’s values for the rest of the year reflect the percentage change from that first day of the year.

This chart was originally featured in the September 16 Profit Radar Report and projected a seasonal drop starting on October 10.

Seasonality and particular technical analysis are much better forecasting tools than fundamentals. It’s now obvious: The fundamental reasoning that gold prices must go up because central banks and China are buying doesn’t work.

The Profit Radar Report looks at technical analysis, seasonality and sentiment to identify low-risk buy/sell signals. We sold our gold position (established near the low) at 1,420 on August 27). Wednesday’s Profit Radar Report identified the must hold support level, that once broken should lead to much lower prices.

Here is why this reasoning is flawed: Why The Notion of a Demand Driven Gold Rush is Flawed

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

Is this Gold Rally Real or ‘Fool’s Gold?’

A novice wouldn’t be able to distinguish fool’s gold from real gold. Even gold experts have trouble telling the difference. Miners have come up with the acid test to avoid getting fooled.

Most metals tend to bubble or fizzle when they come into contact with acid, precious metals don’t. Placing a small drop of a strong acid, such as nitric acid, onto the metals surface quickly and unmistakable differentiates real gold from fool’s gold.

Is this gold rally the real deal or is it a fool’s gold rally?

The results of this analysis won’t be as conclusive as the acid test for gold (nothing ever is in investing), but there are some worthwhile indicators to consider.

CBOE Gold Volatility Index

The April 28, 2013 Profit Radar Report examined a pattern in the CBOE Gold Volatility Index to ascertain if the April low at 1,321 was here to stay.

The CBOE Gold Volatility Index is basically a VIX for gold as the VIX methodology is applied to options on the SPDR Gold Shares (NYSEArca: GLD).

An update chart of GLD plotted against the Gold VIX is shown below. Major gold lows in 2010 and 2011 occurred against positive gold VIX divergences, where gold prices dropped to a new low, but the Gold VIX didn’t.

Such divergences are nothing new. I’ve used similar divergences between the S&P 500 (SNP: ^GSPC) and the VIX (Chicago Options: ^VIX) to nail major stock market lows in March 2009, October 2011, and June 2012. See S&P500 Forecasting History for more details.

There was no such divergence in April 2013 when gold (NYSEArca: IAU) dropped as low as 1,321. This suggested new lows and the April 23 Profit Radar Report stated that: “A new low would be the best buying opportunity.”

We got that new low on June 28, but it didn’t have all the hallmarks of a lasting bottom. We were long for parts of the rally from the June low, but never committed fully.

Our focus was on the iShares Silver Trust (NYSEArca: SLV) where we just closed out a very nice trade. We went long gold again with Thursday’s move above 1,345 (GLD trigger was 130.15).

The move above 1,345 is bullish, but gold has already reached your initial up side target around 1,365 (see resistance lines in chart below).

If gold can move above resistance here, it is likely to extend its rally and move to our second target. Otherwise watch out.

Gold prices have a huge effect on gold miners (NYSEArca: GDX). One unique valuation metric – which correctly predicted the 2001 and 2008 low for mining stocks – just flashed a rare signal. Read more about the Gold Miner’s Signal here: By One Measure Gold Miners Are as Cheap as Ever.

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow him on Twitter @ iSPYETF or sign up for the Free Newsletter.