The Bull Case For Gold

04/21/2021: Back Up The Truck On Bullion…

On August 9th of last year, I wrote that we should expect a significant correction in gold due to extreme trend deviation and wild speculative positioning. We had taken full profits on our long gold positions just two days earlier and subsequently shorted silver at what ended up marking the top of the last bull leg (here’s our framework for analyzing precious metals).

You can find that write-up here “A FOUR Sigma Event” and below is a tweet from Aug 7th.

A month and a half later, on September 23rd, I reiterated our short gold call noting the move still had a long way to go in my Market Note “Mind The Gap”. Here’s a clip from that report. Make sure to read the last highlighted bit.

We’ve now seen a peak-to-trough drawdown of approx. 20% in gold. And this correction has lasted 176 trading days. Compare this to the average drawdown of 21% and 255 days until new highs and I’d say we’re about right on schedule… We also saw gold briefly dip below 1,700 at which point buyers came flooding back into the market.

We bought back into gold on March 31st, getting lucky with our timing and nearly bottom-ticking the move (see chart below). We’ve already 5x’d our initial risk on the trade. But this is still very early days in the bullish precious metals trade and I think it’ll soon be time to BACKUP THE TRUCK on gold, silver, and miners

Precious metals now have a Trifecta of data points aligning behind them. This gives us the complete opposite of the bearish conditions we had in the Fall of last year.

Let’s go through some charts.

Sentiment and positioning have not only reset but have swung all the way to the other side. Call buying in Gold ETFs has completely dried up — contrast this against the extreme speculation we saw in August of 2020.

We’ve seen nothing but outflows over the last six months. This is exactly what you want to see in a large bullish correction.

The percentage of miners trading above their 200-day moving average is turning up from deeply oversold levels (-20%). Look at past instances where this has happened while in a broader uptrend. It’s been a powerful buy signal each and every time.

Our Precious Metals Extreme Buy/Sell Indicator triggered two back-to-back buy signals over the last few weeks. Again… compare this to past buy readings.

The silver/gold ratio is confirming the larger bull regime for precious metals. Silver is considered the more speculative of the two. So it makes sense we’d see it outperform gold in a bullish environment for precious metals and vice-versa when in a bear regime.

Silver, and precious metals in general, are a fantastic market for technical traders. Both tend to exhibit high-fidelity in their chart setups.

Currently, the long-term tapes for both are ***chef’s kiss***.

Silver is coiling tight in a bull wedge. This is similar to the compression regime I wrote about back in March 2019, when we first turned outright bullish on the precious metals complex (example here). Compression regimes like these tend to precede explosive moves.

I don’t know exactly when this move will kick off again in earnest… it could be starting now or in a few more months… But, odds are high it’ll be starting soon. As long as gold stays above the significant 1,775 level, we want to be tactically building up exposure to this budding trend.

We’re going to be doing this through a mixture of futures, equity in miners, and potentially DOTM calls. I’ll be out with a follow-up note over the weekend outlining the trades we’ll be making next.

Lastly, since a few of you have asked. We’re not looking to take profits on our Palladium long position yet. The trend is in our favor and as long as it’s in a Bull Quiet regime and positioning is as offsides as it currently is, we want to stay in the trade and even add on pullbacks.

Stay safe and keep your head on a swivel!

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.