After a roaring bull market in the 00’s, where to for gold from here?
I had a reader ask me, so here is a macro assessment with a strategy recommendation at the bottom.
The Gold bull market is finished
I see the current bull market in gold as ended (you can look at a long term price chart and see it pretty clearly). Of course this is just my belief and others are welcome to have a different one.
Gold bull markets occur only a few times a century
Gold bull markets only occur a few times a century. What is likely to happen now is the price will chop around for a long time (possibly a few months, or most likely years) or even fall a bit (see below) before a new bull market begins when global growth and in particular lending conditions recover.
Gold falls in a deflationary environment and we are in one now
Gold (and most commodities) rise in inflationary environments and fall in deflationary environments. My current belief is we are in a deflationary environment. Some people don’t think this is the case because of central bank printing. But that is because they don’t understand the impact of debt destruction and the velocity of money.
Basically, more money is being taken out of the system than is added in (except into equity markets), and people are spending less because they have to pay off debt and borrowing conditions are more stringent – hence deflation. By the way, I have very much over-simplified this. Read some of Gary Shilling or Harry Dent’s books to get a good grasp on the topic of deflation and it’s counter-part “deleveraging”.
My position on gold
I am currently short gold on my long-term technical only trend following system (this is published each month in the SFI report).
But as a discretionary trader I am sideways, as the bottom of the range weekly support has held, but I think the chances of a new bull market are statistically low and I like high probability trades, so I am calling a range bound market for the next while.
Note: It’s not good to blindly follow a call that someone makes. You need to take it and synthesize it into your own strategy if it fits, otherwise you won’t know what to do when conditions change, and will be stuck holding something (generally a loss) you don’t want to.
Strategy
Watch patiently (it could be a long time!) for a new bull market to unfold and scale-in if it does, but if we get a break-out low scale in short. In the meantime gold is in a sideways market type, which is a good time to accumulate a positon.
Take advantage of the choppiness by buying near the bottom of the range and selling on tops. Of course, be wary of the downtrend continuing and trade what is in front of you.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (https://fxrenew.com/forex-course/). He is a part owner of Forex Signal Provider www.fxrenew.com (You can get a free trial). If you like Sam’s writing you can subscribe to his newsletter for free (https://fxrenew.com/newsletter-sign-up).
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