4 Reasons A Buying Opportunity is Fast Approaching in Gold

“Is this it for gold?” is the question many are asking themselves this morning. With the yellow metal falling $50/oz in a matter of minutes Sunday night one has to wonder if the coffin is closing for the long-term gold bull market or are we rapidly nearing a bottom in what has become a brutal nearly 4-year bear market?

 

GC_15-minute

The answer is that we’re probably very close to a sizable countertrend rally, however, the largest losses often occur just before the bottom.

4 reasons why a sizable countertrend rally could be close at hand for gold:

1. For the first time since early 2009 (a great time to buy gold) portfolio managers as a whole do not see gold as being overvalued

Gold_Valuation

 

2.  The latest CFTC Commitments of Traders data shows that we are at the most constructive positioning since at least last November’s low

Gold_CoT_Chart

The following chart highlights the fact that gold futures speculators are the marginal market participants whose behavior largely drives the short term fluctuations in the gold price:

 

Gold_Specs

We are currently at a very low net speculative long positioning driven by a large number of speculative shorts.

 

3. Retail trader sentiment as illustrated by the StockTwits sentiment streams for GLD and NUGT has never been more bearish on gold related exchange-traded funds (I can’t recall seeing NUGT below 50% bullish sentiment…)

 

GLD_Sentiment

 

NUGT_Sentiment

 

4. The August-October seasonal bullish trade in gold is one of the strongest and cleanest trends in the commodities space. July has been a messy and volatility month for gold historically, with this July clearly being no different.

 

Gold_20-year

 

Meanwhile, the monthly chart shows a breakdown from a 2-year descending triangle which targets at least $1,000/oz:

 

Gold_Monthly_7.20.2015

The ~$1,000/oz level also coincides with support/resistance from the 2008-2010 time frame and the rising 150-month moving average. Gold could reach this target zone any day now and given some of the extreme positioning and sentiment we are currently seeing I believe it is likely that we will get a powerful $100+ countertrend rally that punishes late bandwagon bears and rewards those who step in to provide liquidity in the midst of a panic liquidation.