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!