A Gold Bull Market Lurks in the Shadows

Gold had a great first quarter. It closed at its highest level since the second quarter of 2014.

But it could do a lot better this quarter.

Bloomberg reported yesterday:

Gold will surge to the highest level in five years if a global trade war breaks out, according to Rick Rule, chief executive officer of Sprott U.S. Holdings Inc., who’s been involved in the market for four decades.

Bullion could top $1,400 an ounce in 2018 as escalating trade tensions drive investors to havens and the three-decade bull market in bonds nears an end, said Rule, who’s due to speak at a conference in Hong Kong on Wednesday.

Rick Rule is a smart businessman and successful investor. He’s been around for decades in the resources sector. When he talks, you listen carefully. Rick tends to make a lot of interesting comments. That’s why it’s worth looking closer at the gold sector.

Take a look at the Vaneck Vectors Junior Gold Miners Index [NYSE:GDXJ]:

Vaneck Vectors Junior Gold Miners Index 04-04-2018


Source: Interactive Brokers
[Click to enlarge]

You can see the junior gold miners surged into the Brexit referendum in June 2016. But British politicians didn’t pay attention to the vote and kicked the can down the road. Reuters reported the latest story on 20 March:

The pound surged on confirmation that Britain would remain effectively a non-voting EU member for 21 months until the end of 2020. Some business leaders, however, echoed a warning from EU negotiator Michel Barnier that the deal is legally binding only if London agrees the whole withdrawal treaty by next March.

That means solving outstanding issues, notably how to avoid a “hard border” that could disrupt peace in Northern Ireland. Britain says an EU-UK free trade deal to be sealed by 2021 can do that. But Dublin insists the Brexit treaty must lock in a “backstop” arrangement in case that future pact does not work.

Everything points towards gold

I’ll be blunt: Brexit will probably never happen in our lifetime. Britain’s politicians are sending the country back into the dark ages, neglecting the vote. The mainstream media typically supports the political agenda. It rarely discusses both sides of the story. Put differently, I believe the government and mainstream media are trying to stop Brexit.

That’s why, despite a stronger gold price over recent months, the junior gold miners still haven’t recovered from Brexit’s failure. There’s no need to buy insurance yet. The yellow metal needs to break out into a bull market. Fortunately, outside Brexit, there are plenty of reasons that could happen soon.

Trade wars, rising US interest rates, the prospect of a major war breaking out in the Middle East, a movement towards anti-establishment parties across Europe, and the witch hunt against US President Donald Trump could all drive gold prices higher.

It’s the perfect storm.

I believe gold could break out into a bull market later this year. But we need to see new highs on a monthly close, above last year’s high of US$1,377 per ounce to confirm a bull market. That would signal a new series of higher highs and higher lows.

Take a look at the monthly chart dating back to 2009:

Gold monthly chart dating back to 2009 04-04-2018


Source: Tradingview.com; Gold & Commodities Stock Trader
[Click to enlarge]

The monthly chart shows the major trend in motion. The 2009–11 bull market was defined by higher highs and higher lows, shown by the dark black lines. Take a look at this image:

Gold 2009–11 bull market 04-04-2018


Source: Meta Binary Options
[Click to enlarge]

The left-hand image shows an uptrend, with higher highs (HH) and higher lows (HL). The right-hand picture shows a downtrend, with lower highs (LH) and lower lows (LL). Now, while we can’t be sure yet, gold may have entered a new bull market in December 2015. Take a look at the monthly chart again:

Gold monthly chart dating back to 2009 04-04-2018


Source: Tradingview.com; Gold & Commodities Stock Trader
[Click to enlarge]

There’s a good chance the major low could become US$1,046 per ounce in the future. That was formed in December 2015 — two days before the US Federal Reserve raised interest rates for the first time in nearly a decade. Gold moved to US$1,374 in July 2016, creating a higher high.

It pulled back and hit US$1,377 per ounce last year.

It was a new, higher high.

That’s the key to this story.

We need to see new highs above US$1,377 per ounce. It would signal that gold has entered a new bull market. Once it makes a new higher high, say near the US$1,400 per ounce mark, it can pull back and make a new higher low. That’s the technical formation needed for a bull market.

I’m letting the numbers do the talking — not my opinion. So now is the time to buy the best junior gold miners, before it’s too late. The situation could look very different in a couple of months’ time.

Regards,

Jason Stevenson,
Resources Analyst, Gold & Commodities Stock Trader


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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