Here Are Some Thoughts I Have on Gold

There are lots and lots of ways I can try to count this long period of consolidation we’ve had, but I don’t like to count structures such as this as too many counts seem equally reliable, and so I like to rely on other tools. So, first, we see what everyone sees: contraction in price, followed by a breakout that gold bugs the world over have been waiting for, for a year. Is it bullish?

Hmm, I dunno. I want to splash cold water on that thought for a strange reason: I’ve been around a little while, and it seems to me (at least in my lifetime) that the public is more interested in physical metals right now than I have ever seen in my lifetime (and it was quite a doozy after the GFC). And when I see average folks deeply passionate about an idea, my instinct is to run in the other direction.

And why would the public be so passionate? Well, there are narratives present today spread by popular and charismatic speakers who make a persuasive argument: the Fed is out of control and gold is your hedge. You can outsmart the reckless Fed by denominating your wealth out of the fiat that they are debasing as fast as they possibly can. And hell, not gonna lie, it sounds good.

Nevertheless, the popularity and broad acceptance of that story inclines me to anticipate a great disappointment, because the public is never really right about that sort of thing (or so says the contrarian embedded deep within me). And so, even if I were to acknowledge the bullish potential of this breakout, I would remain uninterested until there was a retest. The old adage is (as it should be): don’t buy the breakout, buy the retracement. So, if we retest the upper trend line, that would be a good entry, because that’s also now the stop.

GOLD

But there are also other ways to look at this price action. We can treat it horizontally, too. Now, every period of consolidation is either: accumulation (or re-accumulation) or distribution. And how do we know what that is here? So, on this look, we would want it to go much higher to even have the look of a breakout, and it, too, would be untrustworthy until the range was retested. And so on this interpretation, it’s not even broken out yet.

GOLD

And furthermore, let us look at a trend line that has served as support for over a couple of years before it became resistance last year:

GOLD

I would continue to mistrust this move until I saw whether there would be a reaction at that line.

So, it looks prima facie bullish but I think there are far too many goldbugs out there right now, and the hairs on the back of my bearish neck incline me to believe that this present move will become a great big bull trap.

The good news for goldbugs is, of course: authentic believers of gold as a hedge against inflation (and it absolutely is—in the long run) should be ecstatic. The longer the price stays lower or outright goes lower, the more they can accumulate at better prices. Genuine gold bugs tend to think in decades. Shorter than that for this instrument is mere speculation and I bet this is a trap.


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