Gold Update, Plus New Profit Potential in Corn and Wheat!

The grain markets have been decimated over the last two-plus weeks with both corn and wheat prices breaking to new lows for the year, but my models indicate a major bottom may now be in place with explosive upside potential for the grains just ahead.

More details on the bullish case for corn and wheat in just a minute, but first let me give you a brief update on gold …

I have received several member questions in my email inbox similar to this one (paraphrasing):

“Larry, now that gold broke above $1,368 please update if this confirms: Scenario A, and gold will drift lower then fall into October, or … Scenario B, and gold will run higher due to the cycle inversion?”

With gold moving higher still over the past week, I’m sure this question is on the tip of everyone’s tongue right now, so let me be perfectly clear: Nothing has changed and no major weekly or monthly buy signals for gold have been elected. Ditto for silver.

True, gold did move to within a whisker of my upside pivot point at $1,368 last week, but failed to hold that level on Thursday June 30, where it closed out the month of June (and Q2) at $1,320.60. Friday it moved a tad higher, but closed at $1,339.00, still short of the buy signal needed to turn bullish for my models.

While gold may indeed drift higher, make no mistake, this rally is running on fumes and the upside potential at this point is nowhere near worth the downside risk. Want more evidence this rally is doomed to fail? Just look at these three sentiment factors, which are all urging extreme caution right now …

First, open interest in gold futures contracts traded on the Comex in New York climbed again last week to the highest level since late 2010, which wasn’t too long before the gold rally stalled then ended with a crash in 2011.

That’s right, speculators in gold futures pilled in near the top, then got wiped out in a five-year long bear market.

Second, money managers boosted their net-long positions on gold to the highest level on record, according to CFTC data. In other words, the dumb money is turning wildly bullish at precisely the wrong time, AFTER the big first-half rally.

Look, these guys are almost always late to the party, and mark my words, they’re liable to wake-up with one doozey of a hangover after the next correction in gold.

Third, meanwhile guess what the smart money is doing right now? They’re selling, that’s what. I track dozens of indicators for gold, and one that I keep a watchful eye on is BullionVault’s Gold Investor Index, which just fell to an eight-month low at the end of June.

Let me explain why this indicator is important to me, and why its flying a big red-flag of caution on gold and silver right now: BullionVault is the world’s largest online gold investing service, with about $2 billion in transactions for more than 60,000 users globally. It’s one of the lowest-cost ways for private investors to gain access to the physical bullion markets.

Their customers are ultra-wealthy, smart-money buyers of gold and silver, not speculators, futures traders or hedge fund jockeys. And BullionVault’s index that measures the smart money buying and selling of gold and silver just dropped to the lowest level since before the rally started last year! Why?

Because savvy investors are taking advantage of higher prices to bag profits right now. They’re selling into this rally, plain and simple, not buying at the top of it!

Bottom line: The cycle inversion has muddied the waters a bit, but the weight of evidence still favors Scenario A: A brief inversion with gold and silver soon drifting lower again, then falling more sharply into October. I’ll keep you posted the minute anything changes.

Now, on to today’s trades …

Big Upside Potential in Grains …

Corn prices have traded lower in 11 of the last 12 trading days and wheat prices have been down 16 out of the last 19 days. This selling has been greatly exaggerated and I believe a bounce is coming soon.

What could drive grain prices higher? The impact from last week’s USDA Planted Acreage report is now largely priced into the markets, so the focus will now shift to the weather, which is turning bad and that’s bullish for grains.

The “El Niño” global weather pattern that has been keeping global sea surface temperatures above normal peaked back in November of 2015, and is now shifting into a “La Niña” pattern again, which could develop by late summer or early fall.

La Niña is just the opposite, it is associated with cooler than average ocean temperatures. This weather phenomenon typically creates greater than usual weather extremes. Meaning if a region is typically dry, it could turn into a dust-bowl during a La Niña. If it’s usually wet, there may be floods. This can wreak havoc on crop production, which would send grain prices much, much higher. Especially, if a La Niña occurs earlier than expected this summer, there’s a chance for hot and dry weather, which can hurt the crops just as they are pollinating.

Here in the U.S., La Niñas usually produce warmer temperatures in summer and the possibility for cooler temperatures in winter. If this pattern does continue to play out, then it certainly could also boost natural gas prices as well. But natural gas futures are still pulling back a bit after reaching the $3 mark. I will look to potentially get long again after the pullback is complete.

For now, here are the details for the CORN and WHEAT trades that I am recommending today …

Hold all other positions and related stops.

Best,

Larry