Gold shot past $1,500 per ounce last week.
It’s the first time the yellow metal touched that level in more than six years. And the Legacy Research inbox is packed with questions about what’s next.
So we turn to master trader Jeff Clark (Delta Report, Delta Direct, Jeff Clark Trader, and Market Minute), who shows us the one gold indicator that has “never been wrong.”
Before we get to that, a first for The Daily Cut mailbag…
We get lots of questions about lots of topics here at Legacy Research. But I can’t remember ever seeing one about natural gas.
So when I saw Pamela’s question below, I knew we had to get it in this week’s mailbag.
Dave Forest (International Speculator) and E.B. Tucker (Strategic Trader and Strategic Investor) provide the answers.
And apologies in advance to any natural gas bulls in the audience…
Reader question: What do you think about natural gas? Winter is around the corner.
– Pamela D. (Legacy Research member)
Dave’s answer: Great question, and there are indeed a lot of interesting things happening in U.S. natural gas (natgas) right now. Recent data suggests that production from the Marcellus Shale – America’s key natgas play – may have peaked and may now be declining slightly.
That should be a positive, but there’s an X factor: the Permian Basin of Texas.
The Permian isn’t a gas play. It’s one of the biggest oil production plays in the U.S. But the oil comes tied up with a lot of gas.
Permian producers want the oil, and they get the gas no matter what. So, they’ve been nearly giving away the gas. In some cases, Permian gas prices have gone negative – meaning they are literally giving the stuff away.
Oil and associated gas production from the Permian have been absolutely booming in recent years. And low natgas prices have absolutely no impact on gas production there, because producers care about only the oil.
All that said, recent softness in oil prices could drop Permian oil drilling – and thus decrease gas production.
I’m watching this key area to see what happens. If it looks like Permian gas output is finally dropping, this could be a signal to jump into gas. But that would be a very aggressive speculation, and one I wouldn’t be comfortable making with my own money.
E.B.’s answer: I don’t like natural gas right now. There’s too much of it, which means the price won’t budge in a meaningful way until the market figures out how to use all of the surplus gas produced from fracking.
However, gas is more regional than oil. It’s hard to ship. The price of gas in Japan, for instance, is far higher than in Texas, where there’s a glut.
In Strategic Investor, we own the world’s most powerful gas producer. It has a direct feed by pipeline into Europe. Without this company, Europe would freeze to death.
To date this year, the stock is up 57%, and it pays a big dividend.
So, while I’m not an overall fan of natural gas, I have found opportunity in the sector.
And now for Jeff Clark… and the gold indicator that’s never been wrong in more than 20 years…
Reader question: Jeff, I know you posted several warnings on the gold and gold miners trade, including the “Mother Indicator.” The gold market just keeps grinding higher, and I am kicking myself for being early on trimming positions and even selling covered calls. What is your current conviction in the gold sector? Thanks.
– Douglas J. (Legacy Research member)
Jeff’s answer: Hi Doug. I’d rather kick myself for being early on getting out of a trade at a profit than for being late. It’s far easier to exit a position when everyone else is lining up to buy it than to try to sell when the entire crowd is rushing for the exits.
The fear at this point, with the gold stocks continuing to grind higher, is that the gold sector may never pull back again. It’ll just keep rallying and we’ll never have a chance to buy back into the sector.
That’s possible, I suppose. Heck, anything is possible. But it’s not likely.
Commercial traders in the gold market – aka the smart money – have a knack for getting super-bullish on gold right near the bottom, and getting super-bearish right near the top. They’re not perfect. They don’t time the trades exactly. In fact, they’re often a few weeks early.
But, in the 20-plus years I’ve been following them, they’ve never been wrong.
Last September, for example, when gold was trading near $1,200 per ounce, commercial traders amassed the largest bullish position on gold in the past 20 years. It took a few weeks before gold started to rally. But anyone following the action of the commercial traders was sitting on large profits by February.
As of last week, commercial traders had the second largest net-short position on gold in the past 20 years. Based on what happened this week, the “smart money” is early on this trade.
But I don’t think they’re wrong.
Gold and gold stocks are severely overbought. Commercial traders are bearish. I wouldn’t want to buy into the gold sector given those conditions.
I like the gold stocks longer-term. But I expect we’ll see lower prices for most of them over the next several weeks.
Jeff isn’t our only expert with a strong opinion on gold.
If you want to hear what a gold industry insider has to say, be sure to read Wednesday’s issue of Casey Daily Dispatch.
E.B. Tucker – the guy who back in December guaranteed gold would hit $1,500 an ounce by the end of 2019 – gives his thoughts on the current rally… and what comes next.
Side note: I’m just back from the Sprott Natural Resource Symposium in Vancouver.
It features more than 100 investment professionals focused on natural resources and precious metals, including Doug Casey, Nick Giambruno, Dave Forest, and E.B.
One of the most interesting things I noted was the optimism of every expert who took the stage. They all see gold going much higher from here… some as high as $4,500 an ounce.
That’s 125% above gold’s all-time high.
Moving on, a question about bitcoin for Jeff Brown. This one comes in response to Jeff’s July 25 issue of The Bleeding Edge…
Reader question: I read your article on being in Washington, D.C., to discuss blockchain technology and the future of Libra. If Facebook has this type of user base, what keeps it from becoming the dominant crypto instead of, say, bitcoin? What effect does Libra have on the future of bitcoin?
– John B. (Legacy Research member)
Jeff is on the road right now, but here’s the insider’s take on Libra and bitcoin from Teeka Tiwari…
Teeka’s answer: Facebook has nearly 3 billion subscribers that it’ll now have to train on how to use its crypto coin.
Like JPM Coin, Libra is not a decentralized cryptocurrency. It will be under Facebook’s control. But the fact that these two mainstream businesses are embracing this technology’s terminology – and riding the coattails of the interest around blockchain – is very bullish for the crypto economy.
Facebook will be bringing crypto to mom and pop – a huge global audience that ordinarily wouldn’t be exposed to it. You’ve got adoption of crypto by mainstream institutions and corporations ramping up… while bitcoin emerges from a bear market. It’s a wildly bullish setup, in my view.
That’s all for today.
Have a nice weekend.
Regards,
James Wells
Director