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 $1,327 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 $1,360 (the 2017 high) and then $1,375 (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 $1,162. 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 U.S. 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 favor gold stocks as never before.
Here are some charts to illustrate:
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:
This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders. Disclaimer: The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.
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Charts provided by the authors.