Gold bulls are frustrated and getting more discouraged by the day. Discouraged by so many false starts this year.
Since early 2017, we’ve seen repeated attempts by the yellow metal to break out decisively to new highs, above key resistance around $1,300 an ounce. Every attempt has so far fallen short.
Now, something resembling a head-and-shoulders pattern for gold has developed over the last six months. And if broken to the downside, it has bearish implications.
Gold bulls see this in the charts. And they’re beginning to throw in the towel.
You can see in the chart above, courtesy of my friends at U.S. Global, the “smart money” crowd has been unloading their gold holdings.
Hedge funds are losing faith in gold. They have been steadily reducing their net-long positions in the yellow metal. Those are now at their lowest level in nearly two years.
Of course, from a contrarian perspective, the fact that the fast-money crowd is bearish on gold is actually a bullish sign.
The fair-weather bulls are giving up. And gold is moving from speculative, weak hands into the hands of stronger, longer-term investors.
The last time hedge funds were this underweight gold was in late 2016. And in early 2017, the yellow metal went on to rally 15% higher!
But our own E-Wave cycle model indicates gold has more downside ahead near-term. So the frustration will continue for a few more months.
Take a look at the cycle forecast chart below. You can see that gold should continue to drift generally lower into November, with periodic rallies along the way.
The good news: By year-end, expect gold to put in a bottom and turn higher. It should even enjoy a sizeable rally into 2018.
So, patience is required for gold bulls over the next few months. But ultimately, that patience should be richly rewarded!
Looking for a more fundamental rationale to confirm the cycle forecast of higher gold prices ahead? Look no further than the chart below …
Financial markets are in uncharted territory today …
It’s a new age of unrestrained money-printing. One with central bank balance sheets worldwide bloated with nearly $20 trillion in assets … the most-toxic kind.
Now there’s talk of unwinding those balance sheets. This is going to be a tricky, uncertain process, to say the least.
That’s all the rationale one needs to expect much higher gold prices ahead.
Good investing,
Mike Burnick
