I’ve got good news for long-term gold bulls. There’s reason to be optimistic. Shorter-term, however, concerns remain.
Part of my market preparations for each year include taking a step back and looking at the big picture across various financial markets. To see the big picture, I look at two things – long-term cycles and what the smart money is doing.
I know that there are all kinds of reasonable explanations of why markets move this way or that. Over the years, however, I’ve heard scores of intelligent people logically explain why something should happen only to then see its exact opposite take place.
As Keynes said, “Markets can remain irrational longer than you can remain solvent.”
So I look to my two indicators – time cycles and smart-money sentiment.
The long-term chart below shows the most prominent cycle in gold that I’m aware of – the 8-year cycle. It also shows how the smart money (the commercial participants in the futures markets) have been consistently bullish at bottoms and bearish at tops.
The 8-year cycle in gold is bullish right now and will remain so through 2020. Smart-money sentiment was very bullish earlier this year but is currently bearish.
When longer-term indicators are in conflict, it’s helpful to drill down to shorter time frames to get more insight about what’s going on.
The current SSI chart on gold is still moderately bullish. The SSI Trend is still up but gold is very close to crossing its SSI Stop Loss line. As I write at this moment, gold is down again today and is in danger of closing below $1,209, which would trigger the stop. I expect that will likely happen.
Let’s take a look at the shorter-term cycles and smart-money sentiment.
Here again we can see how commercial hedgers, aka the smart-money, are regularly and correctly bullish when gold is bottoming. They are not bullish right now … which strongly suggests that gold has likely not found a bottom yet.
My best guess is that we’re likely to continue to see weaker gold (and gold miners) into the end of 2016. I’ll be looking to see when the smart-money gets bullish before I get bullish again too,