Is Gold about to Get Whacked?
The comments below are an edited and abridged synopsis of an article by John Rubino
Gold has spent the past couple of weeks steamrolling technical barriers and reviving the spirits of gold bugs.
But markets don’t move in a straight line. Bull runs (if that’s what this is) have stomach-churning corrections along the way.
Bob Moriarty of 321 Gold, a consistent voice of reason in the precious metals space, explained this to his readers yesterday:
“Gold bulls are coming out of hibernation with even billionaires talking about how much they like gold. That tends to happen just before a correction. The gold bulls get frothy around the mouth; speculators pour money into gold contracts just in time to get whacked once more so they can whine about how gold and silver are manipulated and no one saw it coming.”
“I’ve written a number of times about the importance of understanding bullish sentiment. I find the DSI of Jake Bernstein the single most valuable indicator I use. On both Thursday and Friday last, the DSI for gold hit 94. That doesn’t suggest a major high marking a top for the next 200 years, but it does say caution would be merited. Too many people turned bullish all of a sudden… The COTs agree. Gold sentiment is excessive.”
The COTs show the structure of the gold futures market, and they are indeed excessive. The past few weeks have seen an epic buildup of speculator longs and commercial shorts.
Since the speculators are usually wrong at big turning points and the commercials are usually right, the paper market set-up is bearish. As Moriarty says, this doesn’t mean an end to the bull market, but it might mean a pause of several weeks.
Playing this is easy, however: Keep dollar-cost-averaging into gold and silver bullion and well-chosen mining stocks. The fundamentals that will eventually drive precious metals and other real assets higher will continue their long march towards an era-ending financial crisis. And gold will track this evolution with the occasional correction.