Hand grenades and the price of sprouts
We are at an interesting junction. Based on sentiment, gold and silver should be at a top. The bullish consensus peaked at 90% last week and that is almost always a sure sign of a top.
'Close' and 'almost' only counts in horseshoes and hand grenades. Because many other indicators are saying it's a great time to sit on your hands and make money.
The first thing I want to emphasize is that price is always right. It's only opinions that are wrong. I know there are ten million people who think they are smarter than price but they end up collecting unemployment checks and working at McDonalds if they don't learn.
For much of the last seven years, when nothing happened, the price of gold and silver went down. If there was nothing else affecting the metals, they went down. I don't know if you have noticed but since the middle of December, you can't keep gold down. It will drop $5, looking like it wants to leap off a cliff and the next thing you know, it's right back up 6 bucks.
Gold not only wants to go up, it wants to stay up. We have extremely high bullish consensus numbers, the number of silver and gold contracts sold short is off the charts and the metals want to keep climbing.
Three weeks ago, 6 out of about 140 gold stocks we track, courtesy of 4figureAU, hit a new 52-week high, and two weeks ago, it was about the same stocks and the same 6 new highs. Last week we had 12 new highs, this week we have 11 new highs out of 140.
That isn't a top. So while there are many signals saying caution, there are also many signals saying full speed ahead. Faint heart never won fair lady. We are in a bull market, if you don't catch every single minor top, just sit on your hands, gold and the gold stocks will be back for another run.
I don't know anyone who can actually predict the price of any commodity from day to day. I know a lot of fools claim they can, but all it takes to prove them wrong is to put some money down on what they say to do. After you lose money a dozen or so times in a row, you'll figure it out. But trends can be called in advance. You don't have to be a brain surgeon to realize a bullish consensus of 90% is pretty high and means people are getting Awful Darned Bullish.
When you are faced with a variety of conflicting signals, the best way to sort them out is to figure out what the smart money is doing. Right now there are some powerful signals being given which probably mean a lot more than the 90% bullish consensus on gold.
For all the screams of pain and whining from the "Conspiracy is King" crowd, it should be obvious to everyone with eyes that we are in a gold bull market and have been for three years. And the drop in the value of the dollar is largely responsible. Gold is a currency, it competes directly with the dollar and when the dollar goes up, gold goes down. When the dollar goes down, gold goes up.
If you invest with blinders as many do, looking at gold could convince you we are at a top. Take the blinders off. If you look at a chart of the dollar, you will realize it fell over the cliff, there are many many reasons why it's going a heck of a lot lower. So ignore bullish consensus and watch the smart money. They are bailing out of the dollar which means gold is going higher in the next few months and gold shares are going much much higher.
How do we know the dollar is going down? Well, that's easy, look at bonds. For most of us, bonds are something that little old ladies with purple hair clip the coupons off, down at the bank, as they mumble about the absurd price of sprouts. But bonds are truly the smart money. The level of sophistication in the bond market is far higher than with common stocks. The big money is in bonds. Take a look at bonds for the last couple of weeks. Ten days ago, bonds dropped 2 full points in one day. That's the equivalent of a 10% move in gold.
Nobody noticed. Actually, the smart money did, the smart money was dumping bonds so they could dump the dollar. Bonds are going down, it's probably foreign money, it's probably very big, very significant and it has caused little more than a ripple. I'll bet you didn't even notice.
And smart money is buying the heck out of the silver stocks. Not the metals stocks in general but the silver stocks specifically. To me that suggests silver is about to cast off its chains and rocket out of the chute just when no one expects it to. Actually the smart money expects exactly that so now we will have to see.
So my last commentary, ...gold is a bitch to print, was to buy, keep loading up. Those stocks are all higher but still remain great value.
We might, but small might, have a little correction. But I suspect the surprises will be on the upside.
Bonds are headed south...
The dollar went off the cliff...
And gold will go higher.
When 100 out of 140 gold and silver stocks hit new highs, sell or lighten up.
There will be a big correction down the road.
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