Is gold about to run with the bulls

In this week's market report:

• Thoughts from the trading desk 
• Gold looks to consolidate  
• Silver’s run ain’t done  
• The rush of the race 

Dear investor,

‘She’s down a hole.’ 

They were the words from our Everything Guru on Tuesday morning when I couldn’t make it to a meeting. 

Of course, ‘down a hole’ was a bit of an understatement…I was about one kilometre underground. 

This trip wasn’t just about my love for rocks, shiny things and my passion for Australian history…it was very important gold business.  

We’re in the process of putting together a video on how the Melbourne Cup is made.  

The gold for the 2021 Melbourne Cup, just happens to come from one of the world’s richest gold mines.  

But before we delve into that tale, let’s check in with the trading desk… 

Thoughts from the trading desk

The question most people want an answer to this week is: what is the direction of gold, up or down? Are we strapping in for bigger falls, or is it time to get excited about a new rally? 

We dear reader, I turned to the folks on the trading desk for their thoughts:  

• One of our traders says he is overall bullish on gold, on the basis that a lot of selling has taken place and a big reduction in investor length has occurred.   

• Moving onto the next guru in our office, another trader says he is ‘Bullish if we regain US$1,800’. 

• Nick Frappell weighed in, saying he’s keen to get buy this dip ‘but I still think we’re stuck in an unresolved sideways move.’  

The takeaway here is, indecision in the gold space remains. The gold bull is yet to be released from the gates without some decisive moves from the yellow metal.  

I appreciate their position. Traders move with the market rather than running with a narrative.  

For me, when gold dips like this I see it as an opportunity to pick up more. Then again, I’m not sensitive to hourly price moves because I have a long term approach to investing in precious metals. 

In saying that, for those that are keen to look at tick by tick moves, there is some positive momentum building in gold.  

Au dipped to US$1,751 on Tuesday. That shouldn’t be a shock though, as I did warn you this was possible last Friday.  

More to the point, Nick says the drop isn’t too concerning. Telling me, the real strength for the gold price will come once it breaks above US$1,830. He expanded on this view with Reuters overnight, suggesting there’s evidence the gold price is consolidating, rather than falling:   

‘”The Fed is keen on signs of continued strength in the jobs market as a guide to tapering. The ADP data was better than expected and if that feeds into the NFP data this week, then gold may weaken again as the case for ‘tapering’ is stronger,” said Nicholas Frappell, global general manager at ABC Bullion.  

‘“Gold has held well at current levels but has yet to break out of the ongoing consolidation.”’ 

This consolidation can be seen on the weekly Ichimoku Cloud chart.  

Last week Nick suggested there was support forming at the base of the cloud, around the US$1,780 level.  

Looking at an updated version today, we can see the weekly gold price remains in the cloud.   

US dollar gold price

Weekly Ichimoku Cloud

(Click to enlarge)

Source: Bloomberg data; Updata Limited

Our thesis of consolidation is further confirmed by looking at Managed Money. This data gives us an idea of where the institutional coin is going.

Turns out, our big money friends look might be turning bullish on gold:

Gold Managed Money positions

Commitments of Traders (COT) report

(Click to enlarge)

Source: Bloomberg data from Commitment of Traders Report 

The past few weeks has seen more long positions (those who think the price will go up) exit the market; however from a technical point of view the price seems steady at these levels. 

This suggests the market reckons the price bottom for this cycle is somewhere around here. 

The past few weeks has seen more long positions (those who think the price will go up) exit the market; however from a technical point of view the price seems steady at these levels. Adding weight to Nick’s comment that the price action we are seeing is consolidation.

Interestingly, a similar story is appearing in the silver markets too: 

Silver Managed Money Positions

Commitments of Traders (COT) report

(Click to enlarge)

Source: Bloomberg data from Commitment of Traders Report 

Does this mean silver’s run ain’t done?

Perhaps.

It could be the ‘other’ precious metal is taking a breather before it’s next leg up. Rick Rule said something similar to me this morning.

He said the forgotten precious metal has a habit of rewarding patient investors with bigger percentage gains in the final stages of a gold bull market. We’ll be releasing that interview early next week. (Make sure you subscribe on ABC Bullion’s YouTube page so you’re notified when Rick’s video drops.)

The rush of the race

Whoof, I thought to myself on Tuesday. I forgot how hot it is underground.

The air was thick and musty, with a temperature around 35 degrees Celsius plus 100% humidity.

Chuck on about five kilos of safety gear, heavy steel capped boots, muddy clay at your feet and each step underground is exhausting.

By lunchtime the caffeine I’d consumed from my two hour pre dawn drive had ran out. So had the bag of Minties I’d packed for snacks.

But nothing was going to dampen my enthusiasm.

I was a kilometre deep in the Earth, inside a mine I’ve written about for three years…but admired for even longer.

My rock nerd side had been longing for this moment.

(Click to enlarge)

I was inches away from the shear that redefined what we knew about the Victorian goldfields. I touched the very rocks that this mine be upgraded to ‘one of the richest gold mines in the world’.

Many gold-bugs have heard of the Fosterville mine (owned by Kirkland Lake Gold [ASX:KLA]) in Bendigo. Few get the opportunity in stand in the bowels of the Swan Zone.

Frankly, I was as giddy as a kid on Christmas morning.

While I could’ve spent all day rattling around those tunnels, there was no time for rock talk.

A film crew and I had work to do.

The 2021 Melbourne Cup — made by ABC Bullion — uses gold from the heart of Australia’s first gold rush…the very place that transformed Australia’s economic fortunes.

Here was little old me and a bunch of blokes touching fresh rocks containing the gold that would end up in one of the world’s most prized trophies.

A trophy made by hand, by one of the few remaining silversmiths in the world.

You’ll get to see this story in just a few weeks, and I can’t wait to share it with you.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion