Gold has rallied more than 10% four times in the past 3 years … and yet it has declined 35% over that same period of time. Is the most recent gold rally different this time?
It’s my job to make sure that you’re thinking about things that the rest of the media might not deem necessary to bring to your attention. Let’s take a look at how the major rallies in gold have played out over the last few years.
This chart shows all the +10% moves up in the price of gold over the last 3 years. The chart uses a log-scaled axis. Each of the horizontal grid lines represents a five percent move in the price of gold. Log-scaled charts make it easier to see equal percentage moves in price.
What’s easy to see in the chart above is that the most recent rally in gold isn’t even the biggest rally that gold has had in the past 3 years. There were two larger rallies in 2013 and 2014.
So is it different this time? Has gold really put in a bottom or is this just another sucker’s rally where insiders are selling while the public is buying?
There are some substantive arguments to be made by both gold bulls and bears…but what I need to show you today is why I can’t recommend that you back up the truck on gold just yet.
I’ve mentioned Commitment of Traders (CoT) data a lot recently. There’s a good reason for that. It’s a very powerful indicator of what the market insiders are doing. In particular, I like to look at Commercial Commitments of Traders data. This tells me what the commercial interests (i.e., gold mining and royalty companies) in gold are doing with their own money. Take a look:
The bottom part of the chart shows what the commercial institutions are doing in the gold market with their own money. Each of the vertical blue-gray bars shows a peak in price in gold. Notice how the peaks in price correspond with lows in the positions of the gold commercial institutions.
The institutions are selling while the public is buying … which is exactly what we are seeing today as well.
The most critical service that I provide to you as investors is to help you avoid large losses … and capture a few large gains. Buying gold in a panic because you’re worried that the price of gold is about to get away from you is one of the ways to incur large losses – especially when the institutions are selling into the very rally we are buying.
Personally, I am increasingly interested in gold. It’s had a sharp rally and the Smart Moving Average is even starting to turn up.
With a bit more of a rally, gold may well trigger a Re-Entry Rule.
Being interested and backing up the truck, however, are two very different things and it isn’t time to back up the truck when the institutions are the ones selling you their gold.
Stay safe … and smart,
Richard M. Smith, PhD