The Great Gold Bear Trap (and How You Could Potentially Profit)

There’s no denying it.

The yellow metal has had a rough few weeks. You might be worried if you’re holding a number of precious metal stocks.

But are the tough times ending?

Daily FX wrote earlier on 25 August:

Gold prices appear to be on their way to test the August-high ($1225) even as Federal Reserve pledges to further normalize monetary policy, and the precious metal may stage a larger recovery over the remainder of the month as the bearish momentum unravels.

Fed Fund Futures continue to reflect expectations for four rate-hikes in 2018, with market participants gearing up for a move in September and December, but comments from Chairman Jerome Powell appear to have rattled bets for an extended hiking-cycle as the central bank head strikes a more balanced tone at the Fed Economic Symposium in Jackson Hole, Wyoming.

During his speech, Chairman Powell talked down the risk for above-target inflation as “there does not seem to be an elevated risk of overheating,” with the central bank head spending zero time to boost the credibility of the FOMC even as U.S. President Donald Trump continues to speak on monetary policy.’

The US Fed hasn’t changed its view ― higher interest rates loom. So, what might that mean for gold in the weeks ahead?

I’ll explain…

Battle of the Titans: Who wins when bitcoin and gold head-to-head…and how can you profit? Find out more.

The past

Earlier in the month, we warned readers that US$1,200 was the new US$1,000 for gold:

Gold shorts thought gold would crack the US$1,000 zone in early 2016. It was a psychologically important level. Today, there doesn’t seem a target in mind. But most punters expect gold to a bounce off the US$1,200 zone.

What if it doesn’t happen?

The yellow metal might surprise everyone and dip below the US$1,200 level. That would trap the majority and convince everyone that gold is a terrible asset class. Of course, considering the net short position, we could then see one of the largest short squeezes of all time!

The yellow metal collapsed below US$1,200 last week. That shocked multiple commentators who are even more bullish on gold now. The net short position has jumped higher. That’s why gold could potentially be setting up for history’s largest slingshot into December.

Take a look at the following chart:

Graph of Gold prices


[Click to open in a new window]

Gold has surged during mid-to-late December every year since 2014. Considering the historical correlation — which could always breakdown — the next gold bull market could start in late December.

I summed it up a fortnight to readers of my premium advisory service:

I’m expecting a perfect technical bottom at some major support level. Once this happens, with plenty of things that could go wrong around the world, we could see ― possibly ― the largest short squeeze in history. That’s why gold remains on track for a major breakout in December.’ 

Here’s the latest monthly chart for gold:

Graph of Gold prices


[Click to open in a new window]

Major support dating back to the 2008 low and 2015 lows ― shown by the blue uptrend line ― didn’t hold at the US$1,177 per ounce level.

But no need to worry…

Gold bounced off the black downtrend at US$1,160 per ounce, as we (correctly) warned our readers. The black trend line showed resistance during 2016 and support during 2017. So, with traders eying off minor support, gold bounced.

But will the bounce last?

Bitcoin or Gold: How You Could Profit From 2018’s Biggest Clash. Get free expert advice here.

Digging deeper

Technically speaking, despite my positivity, gold could shock the bulls and re-test major support at the US$1,140 per ounce level. This level is shown by the red downtrend line dating back to the 2011, 2012, and 2016 level highs. This would be a ‘textbook’ technical move towards long-term support.

Indeed, this move is possible…

Remember, US Fed Chairman Jerome Powell reiterated his positive outlook last week. That’s why the greenback sold off ― temporarily ― on the news. It was a ‘buy the rumour, sell the news’ type trade.

I believe the US dollar could move to re-test previous highs.

Nothing has changed!

Despite more pressure form the greenback, if tensions with Turkey continue in the short term, gold might also fall towards major support.

So, while the gold price could see another sharp drop to the downside, as long as it holds support on a monthly closing basis, there’s no need to worry in my view. Remember, gold short positions are at an all-time high.

The US dollar bear market rally could also reverse soon. (If this is indeed a bear market rally).

Finally, don’t forget, gold has surged into December since 2014.

Will it happen again?

Who knows…but it certainly looks possible.


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:

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money