a continued BULLISH TAKE ON gOLD

3 mins. to read

The following piece on Gold from Barrons caught our eye and explains somewhat succintly why we are positive on the yellow metal and concurs almost perfectly with the observations we have made on this blog here in recent weeks (see Gold tab on right)

The collapse in the gold price from a high of nearly $1,900 an ounce in August 2011 to a low of less than $1,200 late last month inspired a few gold bears to liken the metal’s outlook to the early 1980s, when it fell nearly two-thirds from its January 1980 peak of $850. That bearish scenario would mean a low of $640 before history fully repeats itself.

But there is also a bullish outlook, and it gains credibility from the fact that its source has called the recent market turns with impressive accuracy. Steve Briese (pronounced “breezy”), publisher of the Bullish Review of Commodity Insiders newsletter, thinks the metal’s rise to nearly $1,300 last week could be the start of a sustained rebound.

Barron’s feature story of nearly two years ago (“Why Gold May Take a Breather,” Aug. 29, 2011) opined that “the roaring bull market seems ripe for a downside correction.” The story cited Briese’s strong buy recommendation in January 2011, which caught a fair piece of the bull market. But by August, Briese was issuing a strong sell signal, projecting a low of $1,250, as the Barron’s story reported, a target that seemed outlandish at a time when gold had soared to $1,897.

Briese has now turned bullish again, based mainly on a single indicator that has driven all of his forecasts. The title of his newsletter includes the words “commodity insiders” for a reason, although the “inside” information referred to is available to all. As with virtually all of the commodities he analyzes, his outlook for gold keys off the Commodity Futures Trading Commission’s weekly Commitments of Traders report, which tracks long and short positions in futures and options on all exchange-traded commodities.

Briese’s focus is on the movement in net positions by the professionals in the field who deal in actual gold, traders otherwise known as “commercials” or “hedgers”—not to be confused with “hedge funds,” many of which do trade commodities but are classified as speculators by the CFTC. The bona fide hedgers, which include gold-mining companies, use futures and options contracts to hedge their position in the underlying physical commodity.

Gold’s rapid decline appears to have halted at $1,200 an ounce. Both fundamental factors and “insider” trading data point to a rebound to $1,550.

Since gold dealers and miners generally hold the metal, they mainly hedge through futures and options by taking short positions. Briese’s focus, then, is on the degree to which they are net short. In January 2011, their net short position was quite low, implying that they chose to leave a large part of their holdings unhedged, presumably in the hope of profiting from a rise in price. So Briese turned bullish. By August, however, their net short position had soared, implying that they aimed to protect their underlying holdings against a price decline.

As for right now: “The commercials are the least net short than they have been in more than 11 years,” he observes, “which means they have not been this bullish since gold prices were under $300.”

Choosing to follow these insiders, then, Briese has also turned bullish, setting a relatively modest price target from here of $1,550.

We are now able to take in investor capital to join us in our dedicated Precious Metals fund at Titan Investment Partners and where we deployed our capital during the downdraft in June/early July to sit with a current maximum invested position.

For a PDF overview of this fund, one of the few dedicated diversified Precious Metals funds, click the banner below and submit your interest or email us at info@titanip.co.uk

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