Why ‘Boring’ is a Good Setup for Gold

Gold prices traded sideways for the first part of the year, and have been rolling downhill slowly since May.

It’s very disappointing for gold bulls. Worse than that, it’s boring.

But this also may be a setup for some extraordinary gains.

Why? Because gold’s snooze-walk to lower prices not seen since late last year is so boring that speculative money is leaving the sector. And that makes prices stupid-cheap.

Let me give you an example. Take a look at what speculators are doing in gold futures.


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Last week, hedge funds and speculators cut their net-long position to the lowest levels since January 2016. That’s according to government data compiled by Bloomberg.

This is due to U.S. dollar strength.

Gold is priced in dollars, so when one goes up, the other usually goes down. It’s what I call the “Seesaw of Pain.” And gold has been riding the painful end of that seesaw, as the U.S. Dollar Index has rallied 6% since mid-April.

That’s a big move for a currency.

And it’s happening in ETFs that hold the physical metal, too.

Holdings of all gold ETFs worldwide rose by 15 metric tons in May. This was all due to European ETFs, which saw gold buying as the euro weakened against the dollar. But in North America, where the rising dollar crushed gold, ETFs lost 30 metric tons.

And since reaching a peak on May 18, gold ETFs have been bleeding ounces across the board on both sides of the Atlantic. Take a look …


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In total, physical gold ETFs have lost nearly 2% of their holdings, or 44.29 metric tons.

So, speculators are turning bearish. Institutions and small investors that use the SPDR Gold Shares (NYSE: GLD) and other physical ETFs are taking their money out, too. Pretty bearish, right?

But keep one thing in mind. The mass herd of investors usually do the wrong thing at the wrong time. And I’ve got one more chart for you that shows why you might want to get bullish on gold.

That’s a chart of gold’s big uptrend since it ended its bear market in December 2015. Gold is coming down to test that uptrend right now …


Click image for a larger view.

You can see support from that uptrend is right around $1,250. It’s very likely that gold will test this support. And what do you think will happen there?

I mean, I’m sure sentiment will be negative in the extreme. Meanwhile, there are good reasons for gold to go higher …

Peak Gold: GFMS reports that gold production actually topped out in 2016. It fell by 5 metric tons last year, and should keep zig-zagging lower, due to falling ore grades and lack of new discoveries.

Central bank demand: The world’s central banks will add to their gold hordes in 2018 for the seventh year in a row. This buying spree is being led by Russia, which ended 2017 as the largest official buyers of gold bars for the sixth year in a row.

And according to the World Gold Council, net central bank purchases totaled 116.5 metric tons in the first quarter of this year. That’s 42% higher year-over-year and the highest Q1 total since 2014.


Click image for a larger view.

Russia was again the leader in Q1, adding 41.7 metric tons.

Global uncertainty. The world is a scary place. Now, a potential trade war is added to existing global conflicts. Gold is traditionally the ultimate safe harbor. But it hasn’t been acting as a store of value lately, which is perplexing.

A lot of the money that might hide in gold may have instead found its way into cryptocurrencies.

But have you seen Bitcoin lately? It’s off 57% this year.


Click image for a larger view.

And Bitcoin is one of the better cryptocurrencies! Others have been flat-out demolished. Meanwhile, “boring” ol’ gold looks good by comparison.

There’s only one ingredient lacking for gold right now, and that’s investor interest. I believe when gold tests its big uptrend, which I showed you in that chart earlier, things could change. And in a hurry, too.

Maybe not. Maybe gold will go sideways. Or even down some more. But gold and gold miners are getting stupid-cheap. Plus, if we’ve hit peak gold — which seems likely — then we’re about to enter a seller’s market … one where a ready pool of buyers is only too happy to pay up for the yellow metal.

And that could see some great names blast off in a hurry. Gold has frustrated me for a while. I think that frustration is about to end.

All the best,
Sean

P.S. I’ll be speaking at the San Francisco Money Show in August. It will be a great show, with all sorts of experts sharing their insights. You can find more about that incredible conference HERE. I hope to see you there!

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Comments 8

  1. Libby Murray June 26, 2018

    Where do you sell your gold coins whenever
    you decide to do that or need to cash them out?

    Reply

  2. Verne Collier June 26, 2018

    Sean:
    Thank you for FINALLY commenting on Gold. I have been sweating like crazy watching my Gold and Silver ETFs tank this year especially when most of your analysts were predicting Gold to rise big time after the beginning of the year.
    Be Well,
    Verne

    Reply

  3. Wendell Brown June 26, 2018

    You and Larry talked about $5000 gold for a long time. Do u still think that will happen? In your article you mentioned Crypto as an Option to gold for some people. I had pondered that for some time. What is your feeling about this idea?

    Reply

  4. Tom Beach June 27, 2018

    Hi Sean, I hope you are correct about gold and its eventual rise. Right now it takes a lot of patience and fortitude to stay with gold in any form. I am sticking with it because it is an insurance policy. No one likes to watch as their insurance premium takes money from their pool of money. But I believe that now is a very good time to buy gold. Even if it goes down some more. Insurance costs money. Get used to it. Or keep investing without a net to catch you when it all goes to hell…which seems rather likely to me.
    I know you are one of Larry’s wave theory adherents. So, what does the theory say is coming… and when?
    Hapuna,
    Aloha

    Reply

  5. ken July 2, 2018

    Sean,
    Going into this year you had said this would be the year of soaring commodity prices..gold, silver, copper and about everything else has been hammered by a stronger dollar and pricing is lower now than going into the year. Are you sticking by your earlier claims?

    Reply

  6. George Mast July 3, 2018

    Gold is DEAD. Really, after so many years of nothing and then a mild peak in 2014 we are all being manipulated. Debt notes ( U S Dollar ) is KING, and real wealth ( Gold ) is NOTHING. It is criminal at the highest degrees that this is happening. Oh, our government wanted to JAIL the HUNT BROTHERS but there is not a word for so many years that this BS is happening now to PM’s, on a grand scale.

    Reply

  7. George Mast July 3, 2018

    It is all BS. Theft of U S factories called FREE TRADE, theft of the middle class savings called QE, with LOW return on savings, theft of the established markets from Domestic Firms to Off Shore Firms having most of the shelf space, or electronic sales, Theft of our medicine with synthesized medicines costing so much ( what a real Crock with the medicines costing so much), Theft with the government being so big, and the pay, amount of dollars the pensions are, and benefits government workers get is totally a gouge of our tax payers. The citizen is being pumeled with much more, and the country highlights a DEBT not ( U S Dollar) as KING not real assets????? No backing to our currency and TRADE WAR PENDING. Happy Birthday USA on this Fourth.
    When reality hits it will be like multiple financial megaton bombs.

    Reply

  8. John Grijalva July 4, 2018

    Hello Sean,
    I would like to say I am learning a lot on gold investing from reading your articles. I would like to invest a little of my savings into gold stocks. Maybe you can help me find a good company
    to buy shares in? So how do I go about doing this, since I have not done this before. I would
    appreciate your help or guidance with this type of investing. Would I go to an investing/financial office like Edward Jones or other firms out there? Please give me some advise on this matter.
    Thank you,
    John Grijalva

    Reply