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So Maybe Gold Actually Does Suck

5 comments

I was premature when I gave the green light to gold bulls five weeks ago.  “If you’re a bullion investor,” I wrote at the time, “you can buy the stuff now without fear or qualm.” Had you taken this advice, you’d have gotten aboard just in time to get smashed in the head, since gold was about to have its worst week in six months. I made my recommendation seem even more foolish by running it under the headline Gold Really Sucks. Here’s Why.  This was just a ploy to grab the attention of gold bulls, since the commentary itself, as readers soon realized, was quite bullish.

So what changed my mind?  I’d like to say that fresh evidence on the charts swayed me. In fact, I actually ignored a flashing-yellow signal early in March, when GDX, the gold miners ETF, breached a key low at 31.22 from nine months earlier. This is shown in the chart, and it created a glow-in-the-dark ‘impulse leg’ that was unmistakably bearish. Unfortunately, my focus was elsewhere, mainly on a few subjective factors that were bound to mislead anyone looking for a long-elusive ray of sunshine in precious metals. For one, I noted, bitcoin was finally getting its comeuppance, presumably freeing up speculative energy for bullion. And for two, there had been no vicious takedowns in gold recently, ostensibly because the bad guys finally realized it was time for gold to start discounting the rising crescendo of inflation fears.  I was wrong on both counts, for gold and silver were about to get hit with their steepest two-day sell-off since November. Further selling mercifully stalled, but the jury is still out on whether another wave is coming.

Rallies Died

It took an email from a correspondent to open my eyes to the bearish reality of price action since last August.  The email featured the analysis of someone called ‘Plunger’ who posts on the excellent Rambus Chartology site. Plunger took great pains to separate himself from those who still cling to the notion that bullion’s slide since last summer, punctuated by exciting rallies that died, is merely corrective. It is bear-market action, clear and simple, he wrote, and I find myself agreeing.

The good news is that, whether you call it a correction or a cyclical bear, it is occurring in the context of a much bigger, secular bull market that still has significantly higher to run. Here’s a chart with my target at 2285.  I should also mention that if Comex Gold were to fall a further 24% to the green line – bad enough, probably, to satisfy Plunger — it would generate a ‘back-up-the-truck’ buy signal, based on the rules of my Hidden Pivot System.

How Much Lower

So how much lower will gold and silver need to fall before a durable bottom is possible?  Plunger thinks we are nearing the end of bullion’s ‘disappointment’ phase and that a capitulation finale in GDX would be signaled by a drop below the March 2021 low, 30.72. I agree. Thereupon, my worst case would be 27.17, which is not too far from Plunger’s. And my best case?  I could see as little damage as 31.76, or perhaps 29.13.  Plunger evidently does not expect gold bulls to get off that easily, but his commentary seemed open-minded to the possibility — to the possibility, even, that he is entirely wrong, and that gold is about to embark on a huge bull run. That wouldn’t shock me, even if I’ve just acknowledged that the breakout I touted a month ago was more likely just a false start, one of many for gold.

  • cc chow July 6, 2021, 1:08 am

    I followed another analyst calling for gold peak last summer, so since last summer I have been out of gold sector. I can always wait for gold to correct, but how long the gold correction is, that’s the question.

    &&&&

    Which analyst, CC? He deserves a victory lap. RA

  • Robert July 5, 2021, 2:49 pm

    On a weekly chart you see the last cycle broke outside the downward channel (bull flag) and then was smacked down just on the channel top trend line $1769. If $1750 hold, this could be the start of a new upward cycle. But so fare the price action is not vigorous and it could go down to the lower channel bound around $1600.

  • richardvan July 5, 2021, 2:26 am

    Rick, a couple of counter points to the bearish take above. Your chart in Gold showing a 2285 target ; one could argue that a mechanical buy has already been triggered at the red line.
    Secondly, on the daily GDX chart, using a one off point A of 44.08 price has just turned at the midpoint P, the point at which you’ve taught us that a correction is most likely to fail and hence in this case the bullish trend resume.
    What do you think?

    &&&&&

    There’s always room for “maybe,” Richard. I’ve left room for it myself in the commentary. RA

    • richardvan July 5, 2021, 1:52 pm

      The “maybe” will depend on how the impulse legs in either direction on different time scales play out in terms of their interactions at Hidden Pivot levels. It’ll be interesting to watch. Rick, you’re a great teacher. These metals are real tricky pos.

  • Richard Charles July 4, 2021, 8:37 pm

    Mea culpa.
    Plunger chided himself for missing the – 33 % bear market in GDX this past year.
    His writes his charts show a BMR (Bear Market Rally) in GDX.
    In his Rambus article he still looks for a GDX Bull market after the bubble collapses.
    Anyone around for the 1929, 1937, 1962, 1973, 1987, 1989, 1990, 2000 market crashes may recall the biggest problem at market bottoms is lack of capital from not getting out earlier.
    From past painful experience, markets don’t bottom until most capitulate.
    It appears a lot of gold cash went into Bitcoin.
    If billions of dollars of bitcoin keep disappearing like the South African brothers et al, that could change.
    As noted earlier, there may still remain bullish precious vehicles like SAND.


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