2013 was one of the worst years for gold in a generation, and the strangest part of it is that this loss came during what should have been a banner year for gold.
When the Fed launched its QE1 and QE2 programs, gold posted huge gains, but with QE3, we only had a brief rally in late 2012, and it has been all downhill from there.
The price of gold over the last year highlights just how much Europe has become a powerful driver behind gold vs. the US, which has historically been the main mover. When the European debt crisis started a few years ago, people fearing a financial meltdown in Europe put a lot of their money into gold, as it was the safe haven of choice.
However, with financial and political risk in Europe subsiding, we have seen money leave gold and move into other markets, hence the big outflows from gold ETFs.
Other factors that have dragged on gold over the last year include falling jewelry demand, the loss of gold's role as an inflation hedge (with deflation becoming more of a concern in some areas), tax increases on gold imports in India, and the supposedly improving economy in the US. All of these contributed to the selling of gold.
Gold and gold stocks crashed last year in the summer. They have since been going through a Stage 1 base. This suggests that 2014 will mark the start of a new bull market for gold, gold mining stocks, and commodities. The commodity sector as a whole should be your focus in the coming months, if you want to be able to invest in something for longer than a few days or weeks and possibly make some money.
Gold Market Traders and Manipulators Provide Contrarian Bullish Outlook
Gold market traders and manipulators, like some of the commercial banks/brokerage firms, have been verbally slamming gold, and it turns out many are not as negative as they would lead us to believe.
(NYSE:GS), we all know, is the biggest hypocrite. While advising clients to sell gold in the second quarter of 2013, it bought a stunning 3.7 million shares of the SPDR Gold Trust ETF
(NYSEARCA:GLD). And when Venezuela needed to raise cash and sell its gold, guess who jumped in to handle the transaction? Yup, Goldman Sachs! So while it tells everyone to sell gold, it is accumulating as much as it can without being obvious.
There are a lot more reasons and fundamentals to be bullish on commodities and gold, but that is not the point of this technical-based report.
Weekly CRB Commodity Index – Bull Market Cycle About to Start
Taking a quick look at the CB index, which is a basket of commodities, it looks as though a breakout above its down trend line will trigger a new bull market in the commodity sector. While this has not yet happened, it looks as though it may happen in the next few months.
One stock market that recently broke out of a Stage 1 basing pattern (new bull market) is the Toronto Stock Exchange. This index is heavily weighted with commodity-based stocks.
In this report, I want to show you some interesting charts that are pointing to a new gold bull market cycle which appears to be starting.
The chart below of the Gold Miner Index
(INDEXNYSEGIS:GDM) is often misread by many traders, who then trade off its information incorrectly. Many, for example, think this index is based on stocks trading above a moving average which is not correct.
How a bullish percent index is calculated is based on point-and-figure buy and sell signals with each individual stock within the sector, and in our case, the Market Vectors Gold Miners ETF
Gold prices peaked in 2011 at $1,923 per ounce when the gold mining stocks index was above 80%. Why is this important? Because gold stocks typically lead the price of gold in both directions, tops and bottoms.
As of today, we have the reverse situation, with the bullish percent index at 13% and showing bullish divergence from that of gold stocks. This is an early signal that the new gold bull market cycle is turning up and it should not be overlooked.
Also we see the 5th and final Elliott wave pattern forming, and we could once again witness another multi-year rally in the price of gold.
Gold Mining Bullish Percent Index – Weekly Chart
Gold Miners ETF – Monthly Chart
Gold stocks have not yet broken out to start a rally as you can see in the chart below. But the important thing to note is that the daily chart has formed a mini Stage 1 basing pattern and could breakout this week to kickstart a multi-month/year rally.
If you have been following me for a while, you know I don’t try to be a hero and pick tops or bottoms. We all know that strategy is a losing one over the long run.
Since 2011, I have been a very dormant gold trader. Why? Because the price and technical indicators topped out and confirmed a massive consolidation or bear market was in motion.
With gold, gold stocks, and precious metals about to start a new bull market, it is time to get back to trading gold and gold stocks.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.
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