That’s the warning master trader Jeff Clark sent out to readers of his Market Minute trading e-letter last week.
And it’s worth paying attention.
We’ve been showing you how gold is heading into a monster rally. But as you’ll see in today’s dispatch, there’s a short-term dip on the way first.
So if you’re still building a position in gold… it’s worth hanging on for better prices ahead.
And the timing on that call worked out well.
Take a look…
Since then, gold is up 22%.
There are different drivers for higher gold prices. But the one we’ve been focused on is the shattering of faith in fiat currencies by central bankers.
The more central bankers try to stimulate growth by evaporating interest rates on savings… even confiscating savings via negative interest rates… the more people will opt for gold instead.
And as colleague and gold industry insider E.B. Tucker has told Cut readers, he sees gold smashing past $1,900 an ounce in 2020.
As regular readers know, Bill is one of the cofounders of Legacy Research along with Doug Casey.
And like Doug, he believes every investor should own some gold.
Last week, I traveled to Baltimore to record an interview with Bill for lifetime subscribers of The Bonner-Denning Letter. It will hit inboxes in early January.
But I can tell you now that Bill believes owning gold is now more important than ever. As he put it during our interview…
The Fed is supposed to defend the currency. And it’s supposed to do that by maintaining a reserve of real money, gold. It’s supposed to keep enough gold in Fort Knox to back the dollars it issues.
If it doesn’t do that, you have to do it yourself. And that’s really where we are now. In the new, post-gold-standard dollars, we have a currency you can’t trust. So you need to have some currency of your own you can trust. And that should be gold.
And just like with a regular insurance policy, you want to pay as little as possible to cover your risk.
That’s why I’m putting Jeff’s short-term call on gold on your radar today.
If he’s right, you’ll be able to pick up your disaster insurance for less in the months ahead.
Here’s the gold chart that shows Jeff something big is brewing in the gold market…
Gold rallied about 10% from mid-December 2018 to mid-February this year. Then it spent the next few months chopping around in a relatively tight trading range just below its 50-day moving average (red circle on the left of the chart).
The 50-day moving average is the squiggly black line on the chart. And it’s a key trend line Jeff follows.
This tells Jeff that gold is building energy for a breakout move…
In May, gold broke out to the upside…
Over the next four months, the price of the metal surged nearly 20%.
But that surge ended in October.
Now, gold is chopping around again below its 50-day moving average (red circle on the right of the chart). It’s building energy for the next breakout move.
But this time, Jeff reckons that big breakout move is likely to be lower.
That’s because of how the “smart money” is betting. Let me explain…
In every market, there’s “dumb money” and “smart money”…
The dumb money is usually made of investors who know little or nothing about what they’re doing.
Usually, these are mom-and-pop investors. These are folks who try their best to make their savings stretch further. But they make the fatal mistake of buying high and selling low.
Then there’s the smart money. Which investors belong in this group differ from market to market. But they tend to have one attribute in common – they’re insiders.
They know a specific market inside out. This gives them an edge over the dumb-money crowd. And it allows them to buy low and sell high.
They’ve forgotten more about the gold market than most mom-and-pop investors will ever know.
They typically have a large exposure to the metal. And they use futures contracts to protect themselves against a fall in the price of gold. This is called “hedging.”
By keeping an eye on these hedges, you can tell which way the smart money is betting. And that gives you an important insight into where prices are headed… particularly when they’re chopping back and forth with no clear direction.
Here’s Jeff with more on that…
When these insiders see the gold price headed higher, they lighten up on their hedges. Usually to something fewer than 100,000 net short futures contracts. When they’re worried that gold is headed lower, they up their hedges. They do this by betting against – or “shorting” – gold.
Last Friday’s CFTC Commitments of Traders report showed these insiders are still net short more than 300,000 gold futures contracts. This is one of the largest short positions in the more than three decades I’ve been following this report.
And it suggests to me that the next big move in gold is more likely to be lower than higher.
Jeff is NOT saying he’s bearish on the long-term future of gold.
Quite the opposite. Gold is one of Jeff’s biggest long-term positions. And he’ll be looking to pick up more at cheaper prices.
And as I mentioned up top, one of our top go-to experts on gold here at Legacy, E.B. Tucker, believes gold is headed past $1,900 in 2020.
But the message from Jeff is clear. Now is not the best time to go shopping for gold. Instead, keep your powder dry. If he’s right, you’ll get the chance to buy at lower prices as we head into the new year.
Regards,
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Chris Lowe
December 16, 2019
New York, New York
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