Now That the New Year is Here, Can You Dig It? A Golden Opportunity

Amid all the market chaos of the past several months, there’s one vehicle that has developed a remarkably orderly, and classically bullish pattern. It’s not an investment that we normally think of as orderly. In fact, you may not think of it as an investment at all. Some Wall Street pros ignore it. Some recommend it only as a hedge against catastrophe, although I’m not sure that idea holds water.

By now you have probably guessed what it is.  It’s the real money of the ancients, the shiny yellow metal, that many, perhaps even you, still believe is the only real money. Of course, it’s gold.

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Now I doubt that gold has any monetary purpose for us as individuals any more. Clearly central banks think it does because they hold tons of that stuff in their vaults and some central banks have been on programs to acquire more of the stuff. But you and I can not now, nor is it likely that we’ll ever be able to exchange it directly for goods or services.

There Are Several Ways To Buy Gold

We could buy it and store it, and sell it later in exchange for conventional money. However, unless you are dealing in very large amounts, the spreads between bid prices and ask prices for the physical stuff can eat up most of whatever profit you might gain in the short run.

Given the drawbacks associated with holding physical gold, you could hold “paper gold” in the form of a mainstream gold ETF such as GLD, although many gold “bugs” will tell you to beware, that the ETFs don’t hold enough of the real stuff to guarantee backing. For trading purposes, I think the ETFs are about as risky as any other investment. “We pays our money and takes our chances,” as the saying goes.

If you’re a real high roller, you may even be keen to trade the gold futures. But look out if they go against you. The leverage can wipe out more than your investment in a few hours.

The time to invest in defense is now (2019 could be historic)

Safeguarding America’s sovereignty and security weighs in at a hefty price – and the Department of Defense is notorious for exceeding its budget. Right now, the bidding is set at $597.1 billion for 2019 – and we’re expecting this one tiny company to soar


Finally, there are the gold mining stocks. They can give you a piece of the action in the gold price, but they often lag and even go against the trend for significant periods. It can be very frustrating. Some miners are better than others of course.

And in the long run, while gold trends higher with inflation, it has had very lengthy bear markets on the way up, which makes timing critical. If you buy near a top, you can wait decades to break even.

For practical purposes, I think that the gold stocks need to be traded on their own merits. Now, I know nothing about the fundamentals of these operations, or of the metal, which has limited industrial and consumer uses that have little to do with its price. I think that both the metal and the mining stocks need to be traded on the merits of their charts.

For me, gold is a trade. There are times that it can be a very long term trade, and other times, just an intermediate swing trade.

So let’s look at gold’s potential both as a trade, and as a long term hold.

Back in September, I told you that I liked the potential in gold based on the charts. On September 21 I wrote,

Last week and so far this week, the price of gold has also traded above the 9-12 month cycle moving average. These are both signs that those cycles have bottomed, and are poised to turn up. Gold must now close above the high of the range of the past 4 weeks of 1215 to confirm a tradable upturn in those two cycles. If it does, it could be off to the races.


Gold did well in October and I reiterated the opinion that the turn looked promising. November saw a shakeout, but it held at 1200. Any time a pullback holds at a round number, it’s promising, and we saw a strong thrust off that pullback in mid month.

That rally has continued in December. On the daily chart, we see a liftoff from a classic saucer bottom that started in July. The metal cleared resistance at 1240, consolidated, and lifted off again. It has now reached the next resistance level around 1280-85 (cash basis). It’s due to take a breather there. If it consolidates while holding above or around support at 1265, the next leg up should carry the metal to 1300+.

That’s a more significant resistance level. In addition to being a round number, the metal traded there for 5 weeks on the way down. Getting through that level would be a very bullish sign for the longer run.

Here’s what  it looks like on the cycle chart that I publish weekly in  the Wall Street Examiner Pro Trader Precious Metals Update.

Click to enlarge

Most cycle and momentum indicators look good for a continuation of the upmove.

These Charts Shows That the Longer View Also Has Bullish Features

The longer term, weekly chart also looks bullish. It faces rising trend resistance around 1290-1300 in the near term. If it clears that line, it faces a second rising trendline about $25 above.

The long term cycle indicator is bullish, and so are the 18 month and 9 month cycle indicators. The 4 year cycle indicators are in a holding pattern. The smooth solid line is the cycle oscillator. It says that the cycle is in a down phase. But the lighter, jagged line, which represents momentum, has been in a holding pattern during this period. That can persist for months. The fact that it’s holding near neutral is potentially very bullish, if it continues to hold through the down phase. For now, it’s a tossup.

Click to enlarge

The monthly chart gives us a very long term perspective. The 4 year cycle condition on this chart is ambiguous. It’s possible that the September 2018 low was a delayed bottom for this cycle. It appears that there’s room to run to 1369 over the next several months. That would be a reasonable target for the current 18 month cycle up phase.

Click to enlarge

The long term outlook should be decided over the next few months. If the market clears 1300, 1369 will be a reasonable target. From there, the longer the price hangs around that level, the greater the chances of a breakout and a move back toward the 2010 highs around 1900, and possibly higher.

If the bullish outlook holds up, the mining stocks could be an interesting way to claim your stake in a gold rush. We’ll look at those in an upcoming report.

Happy New Year!


Lee Adler

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