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Is A Bull Market Quietly Gathering Strength In Gold?

February 19, 2016

ReservesIs the resumption of the bull market in gold that so many have patiently awaited for years quietly gathering strength under our noses? The possibility occurred to me on Thursday following conversations with two of the savviest investors I know, Richard ‘Doc’ Postma and Doug Behnfield. Doc, who like me does daily interviews on the Korelin Economic Report, has been somewhat more bearish on gold lately than Rick’s Picks, but nevertheless agrees that a $50 rally in the days ahead, to around $1280 basis the Comex April contract, is a pretty good bet. He’s wary of a correction from those levels, and so am I. However, I would surmise from our conversation that I am at least somewhat more open to the possibility that gold will blast off from $1280 without looking back, leaving in the dust all who were hoping to accumulate bullion and mining shares on weakness.

Doug Behnfield, a Colorado-based UBS advisor with a high-net-worth clientele, is well known to regularreaders of Rick’s Picks because we’ve been featuring his remarkably astute essays and opinions for years. His steadfast bullishness on long-term Treasury paper over decades has reaped a capital-gains bonanza for his clients and made him by far the most successful financial advisor I know. It has also boosted my confidence in predicting, based on technical indicators, that rates on the 30-year bond, currently around 2.63%, will ultimately fall to a depressionary 1.64%.

Agnostic, Skeptic Agree

Like me, Doug has long viewed deflation as far more likely to occur in the U.S. than inflation or hyperinflation. We also shared an extreme skepticism toward the supposed U.S. economic recovery that began, ostensibly, in 2009. While this would tend to make us both somewhat bearish on gold, in practice that has not been the case. Doug describes himself as agnostic on gold but nonetheless maintained a large short position for several years as a hedge against his Treasury portfolio while bullion was falling from 2011’s bull-market top near $1920. Last July, however, he began to accumulate gold near $1060, about $14 higher than the eventual bottom that was to occur in December. He did so partly for technical reasons, calculating that a 50% retracement of the 2008-2011 bull would bring gold down to around $962. His initial bids were nearly $100 above that level because he wasn’t looking to get in at the exact low, but to start accumulating gold when it looked like a good bargain.

Speaking for myself, I’ve been using a technically derived target at $817 to keep Rick’s Picks subscribers on the right side of gold throughout its so-far 53-month decline. However, casual readers of Rick’s Picks would not necessarily know that I’ve been advising trades from both sides of the market, bull and bear, all the way down. My trading bias turned aggressively bullish in January with gold trading near 1090. More recently, for a short-term trade, I told subscribers on Wednesday night to jump on the April Comex contract at 1212 despite the fact that gold had looked pretty punk for the last several days. The futures surged intraday on Thursday to 1240, producing gains of as much as $2800 per contract for subscribers who acted on my recommendation. Some evidently did, assuming their grateful posts in the Rick’s Picks chat room are to be believed.

How This Bear Survived

Because so many of my subscribers are heavily invested in bullion, it has been my practice over the course of gold’s long correction to give rallies the benefit of the doubt to the extent possible. While we kept the $815 target in the back of our minds as gold fell, we were ready to put our skepticism aside if the hourly chart turned bullish. This time, however, I am being especially cautious – not out of fear that I will overestimate the rally’s power and longevity, but that I will underestimate it. We’ve become so used to bullion rallies that spike and then detumesce rapidly that this may have inured us to the real McCoy if and when it comes. If the current rally is indeed the real deal, we should see this confirmed by thrusts that turn minor “Hidden Pivot” rally targets into chop suey. The most immediate of them lies at 1280.00, whence, as noted above, a tradable pullback would become very likely. If the April contract makes short work of it, however, that would further shorten the odds that the rally is more than the bull-trap tease to which we’ve become accustomed. Moreover, and as I detailed here a week ago, an uncorrected push above the 1308.00 ‘Matterhorn’ peak recorded in January 2016 would turn the weekly chart impulsively bullish for the first time in years. That would provide the strongest evidence we’ve seen to date that the bear market begun in 2011 is over.

Whatever happens, it was predictable all along than any bull market in gold would develop in such a way as to leave even bullion’s most devoted supporters skeptical. Assuming the rally continues to make its way higher by fits and starts, on low volume and without a sustained push, you should start asking yourself now whether you might be in the group of war-weary gold bugs that the bull is trying hardest to fool. If you would like to learn more about the Hidden Pivot Trading Method, click here. 

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Gold is widespread in low concentrations in all igneous rocks.
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