Gold’s Bumpy Ride

By Greg Guenthner Oct 27, 2015, 5:43 PM 

Gold’s up about 50 bucks for the month. Is it time to buy?

You’re about to find out…

I’ll tell you one thing right now, though – gold is baffling the smartest guys in the room these days. I’m talking about the hedge fund dudes…

“The funds and other money managers have placed wrong-way wagers on gold in five of the past nine weeks,” Bloomberg notes. “Last week, speculators increased their net-bullish position to the highest since February just before the biggest price drop since August.”

Timing’s everything, right?

The gold trade has been a tough one this year. And anyone who has bet big on the world’s most popular precious metal moving higher or lower has gotten pistol-whipped. Bloomberg reminds us that gold has jumped between year-to-date gains and losses a dozen times. A dozen! It’s down a little less than 2% year-to-date if you’re keeping track– and there’s still plenty of time left this year for more choppy action.

So why is everyone getting whipsawed by gold these days? It might have something to do with the Fed dragging its feet when it comes to raising rates. Remember that rate hike we were promised in September?

With all the new talk of no rate hike until 2016, more easing across the globe, and hints of negative interest rates coming soon to a theater near you, it’s really no surprise that gold speculation (in both directions) is heating up right now.

Luckily, we have a shortcut that can help us cut through all of this noise: our charts.

The first thing we need to keep in mind when discussing gold is the long-term trend. I’m sure you know all about gold’s epic run higher over the past decade. You’re also well aware that gold topped out in 2011— and has been slowing sinking ever since. Any way you slice it, we’re in a bear market for gold right now.

Yes, gold has posted an impressive rally since early August. And recent weakness in the U.S. dollar over the summer has helped add fuel to the fire. But as I mentioned before, we need to look at this rally through a long-term lens.

And what you’ll quickly notice is that what gold is experiencing so far is a bear market rally.

I showed you this chart a couple of weeks ago—and it still applies:

While I think gold could see a move to somewhere between $1,200 – $1,250, we don’t yet know if this is the long-term bottom everyone’s been searching for just yet. For all of the back-and-forth action we’ve seen over the past few months, the market has not given the all clear signal on gold as a longer-term trade.

So crack open a 40 oz. malt liquor of your choice this morning and pour a few drops on the sidewalk for the hedge fund crew and their wrongheaded gold bets. They’ve had a tough run…

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