The Time to Buy Gold Is Now

Technicals indicate that the entire metals complex is about to shine brightly with 50% rallies in 2016.
By Ken Goldberg ,

There are certain opportunities in the markets, that don't come around often, but when they do, the reward is often magnificent. Such an opportunity is arriving in the metals complex, where gold, silver, copper, platinum and palladium are all in the final stages of corrective declines that should result in explosive rallies of 50% or more in the coming 12-to-30 months. 

Following is the monthly bar chart of NYMEX Gold futures. Note that this is the third time in two years that stochastics have fallen into the oversold zone (light green box across the bottom of the lower pane), but this latest probing is occurring with new price lows that are not confirmed with lower stochastics lows. This is a big signal for decision support engine users, known as a bullish divergence buy signal. It suggests the the emotional selling into the July low is not as intense at this current lower low in prices. This subtle hint of selling exhaustion is highly correlated with the end of a decline in the price of an asset.  

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Next, notice that price has fallen all the way into the lower end of the upper green box (lighter green zone, noted by "buy action signaled") and into the green oval of attraction. This is the lower trend line of the contracting, descending triangle outlined by the falling red and lower green lines that have controlled prices all year. Another empirical observation can be made by the differing character of the declining action from mid-2013 to the present vs. the decline from the late 2012 peak, near 1800, to the early 2013 low, near 1200. This dramatic softening in dynamics is associated with accumulation by strong-handed bulls, rather than distribution, like during the decline from 1800 to 1200.  

Price is now below the lower two-standard-deviation band (which contains 95% of normality); stochastics are making higher lows while price makes lower lows below the July low; the lower bold, green trend line is being tested; and price has arrived at an inflection point where the 2010 low, early 2009 high, and early 2008 high saw reversals (around 1050). This is the window that the decision support engine has been waiting for to signal that the decline from at least 1425 is ending. Lastly, as recently as last week, trader sentiment toward gold had returned to only 5% bullish; historically such a bearish extreme comes when the decline in the price of an asset is about to end.

Therefore, the decision support engine indicates that right now, around the 1060 +/-15 zone, that selling is absolutely not indicated, and buying is. If you're short, buy stops should be placed at 1075, taking short-sellers out of all short exposure. They should then establish long exposure. Although it not anticipated, any probe of the 1035 +/-5 area, where the lower three-standard deviation band (which contains 99.7% of normality) and lower Bollinger Band await, would be a dream come true, if you're not already satisfied with the 1060s. If you're long, selling is not indicated, so maintaining and/or adding to long exposure along these parameters is the prudent action to be contemplating. If you're flat, this is what you've been waiting for, as this is the best buying opportunity since 2013's 1200 test, if not 2008's 675 spike/reversal low! Don't get caught in the bear trap that awaits late-joining bears that have been getting too short, too late, below 1100. Gold won't be here much longer.

Below is the monthly bar chart of copper futures, which is are either bottoming into the green box surrounding 200 +/-10, or will do so a bit lower, surrounding 165 +/-15. However, with gold and silver (not shown, but not confirming gold's lower low under July's extreme) flashing multimonth, if not multiyear, rallies that are set to begin imminently, copper should at least participate with a test of 250. If current prices do form a more substantial low, 300 is well within reach in the coming nine to 18 months, as gold reaches toward the 1500s, and silver toward 27 +/-5.

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Therefore, if you're short, buy stops should be placed at 225, where sellers should become buyers. If gold spikes to the lower zone mentioned above, copper might probe the 195 +/-5 zone, which would test its lower three-standard-deviation band, too, where neither metal would likely remain for more than a couple hours to days, as those statistical extremes are impossible to maintain.

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This article is commentary by an independent contributor. At the time of publication, the author held shares of NUGT.

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