With Janet “Yellanke” seemingly underpinning what has been dubbed QE “infinity” well into 2014 during her inaugural testimony last week, reports out from the COT data release that net longs of gold futures were cut by a dramatic 32k contracts last week to 55k – only modestly higher than the lows seen in early summer that set the gold price of on a tear from $1190/oz to over $1400/oz and, an SEC release by George Soros that he has re-entered the gold mining arena through a near $30m wager on the GDX ETF, we believe the stage is being set for a sharp end year rally in the Precious metal.
This magazine reported here in July – http://www.spreadbetmagazine.com/blog/a-continued-bullish-take-on-gold.html that commercial hedgers at the time had been the least short on gold in over 11 years. Their collective record is pretty much infallible over a 12 month’s timescale and, right on cue, this reporting presaged a sharp spike in the gold price that we saw in July through August. Most recent data shows a relatively stable net short position.
It was additionally reported last week that during Q3 2013, global investors holdings of gold via ETF’s tumbled by nearly 30% to the lowest level since 2010 which, the astute and seasoned readers amongst you will no doubt guess, was just ahead of a 70% rally… As ever, investors en masse ALWAYS time the market wrong.
Finally, from a fundamental backdrop, with the exception of the UK which, much to the chagrin of the very aptly named Mr Balls of the Labour party, continued to display signs of acceleration in its economy, the rest of the globe, in particular in Europe, displayed signs of renewed weakness. From a “print and be damned” perspective which is the only modus operandi of the major central banks, this is universally supportive of the gold price, in our opinion.
So, with the price action week last week in which gold dipped to a shade over $1260/oz before rallying back towards its opening levels of the week and, as we can see in the chart below, printing a classic doji formation (circled) and also a possible higher low being posted, the technicals may now be lining up with the fundamentals for a good end year rally. To throw the final ingredient for the bull case into the mix, sentiment measures are at nadirs once more. To us, only a weekly close below $1250/oz will alert us to the possibility that more selling is to come and we are wrong in our view.
GOLD 3 YEAR WEEKLY CHART
The real bull case signal to us however is a weekly close above $1340/oz – this will likely take the weekly RSI measure back up through the 50 trigger line, the price will be back above the key weekly moving averages we use for medium term direction (3 & 9 exponential week measures) and importantly we will have broken the major downtrend that has been in place right throughout 2013.
Here at Titan we have incepted what we believe to be a fantastic way to position ourselves for this rally through a NUGT option strategy. Such a strategy will give us a turbo boost to the upside whilst also lowering our entry level. Our piece on SRRI in the last edition of this magazine on page 80 (see here – http://issuu.com/spreadbetmagazine/docs/spreadbet_magazine_v22_generic) has played out well and is akin to the approach we prefer – conviction in our beliefs, solidly based investment reasoning, but always an awareness that the market can wrong foot you.
This is our last post on gold for this year now as we get stuck in with continuing to build the profile of our funds and look to protect the exceptional gains we achieved in our 4 funds during the first near 5 months of regulated operation. If you’d like to join us where, somewhat rarely, we invest our OWN capital then click the banner below for more details or email us at info@titanip.co.uk