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GOLD MARKET FLASH NOTE

Sunday, 7th January 2018

Getting Bullish on Gold  

Gold is up nine of the last 12 Januaries with an average gain of over 4% and the trend has continued in 2018 with gold reaching an intraday high of $1327 so far this year.  From December 19 of last year, gold rose 10 trading days in a row. Is this another rally destined to disappoint investors or the resumption of the gold bull market?

To make a reliable bullish case, gold must first break decisively over $1360 (the 2017 high) and then $1375 (the 2016 high). So, the question can't be answered yet. But there are some encouraging signs. Gold posted a 14% gain in 2017, its best annual increase since 2010. In mid-December 2015, gold bottomed at $1,051 per ounce. In mid-December 2016, it bottomed at $1,128 per ounce. For 2017, the bottom was on January 3 at $1162. That's a trend of "higher lows" which is a solid indicator of a turn in the market.

Breaking out above the July 2016 high of about $1,370 per ounce would generate a "higher high", a strong sign to us that gold is in a new long-term uptrend.

Gold's long-term moving averages are in bullish alignment for the first time since 2012. The last time the alignment structure flipped to bullish was in 2002 which confirmed the beginning of a major gold bull market.

Gold's net speculative position of 33% as measured by the CME's latest COT report is not low but it's far from an extreme. The 2012 and 2016 price tops in gold corresponded to speculative peaks of 55%.

Furthermore, the US dollar is rolling over. A falling dollar, especially against the yen, has been good for gold most of the time. As the dollar has weakened, commodities have strengthened, usually another good correlation with a rising gold price.

One thing that can't be argued: Gold is at an all-time low against the stock market and gold stocks are near all-time low against equities generally. The balance of risks would now appear to favour gold stocks as never before.

Here are some charts to illustrate:

Gold appears to be breaking out of a major 11 year wedge:

Gold appears to be breaking out of a major 11 year wedge

Gold has moved above its 50 and 200 week moving averages:

The Bloomberg Commodity Index has pushed above its 50 week moving average (black line), supporting gold (red line):

Gold is at all-time lows against its most important investment competitor:

And gold stocks are near all-time lows against equities: