There’s a thin line that separates genius from moron.
And, I tripped over that line a few times last week…
It started last Monday when I wrote about the Golden Buy Signal. The GDX/Gold ratio chart had triggered a buy signal. And, I told readers it was time to buy gold.
“You’re a genius,” one reader e-mailed me when the price of the shiny, yellow metal popped $30 higher on Wednesday morning.
As a contrarian, I take pride in recommending the things others don’t want. And for months, gold has traded lower. That usually means there’s not much interest across the market.
But, when interest seems to perk up in a discarded asset, I get worried…
One of the driving forces behind the market is news outlets like CNBC. That’s because millions of viewers take their programs very seriously, and often follow their exact advice.
So, when the financial media turned bullish on gold last week, I began to worry.
For example, CNBC’s most popular host spent ten minutes of his Tuesday afternoon show talking up the positive seasonal period for the metal.
So, as gold was set to run higher on Wednesday morning, I warned subscribers on my real-time blog, Delta Direct:
The one concern I have is that more and more people seem to be turning bullish on gold. They’re citing the seasonal strength that often occurs this time of year. Frankly, I’d prefer it if everyone got bullish AFTER a big move higher – since bullish sentiment can often signal the end of a gold rally.
Sure enough, gold reversed all of Wednesday morning’s rally. Then, it got absolutely clubbed on Friday when it fell more than $40 an ounce.
That action prompted more than a few readers to e-mail me with comments along the lines of, “You’re a moron.”
That’s why I was buying gold on Friday.
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You see, as much as too many folks agreeing with me is a sign of caution, whenever lots of folks disagree with me – and when that disagreement demotes me to “moron” status – I see a buy signal.
We’ll call it the “moron” buy signal – for lack of a better term.
Beyond that, though, there are plenty of logical reasons to be buying gold now.
We’re in a seasonally strong period for the metal… real interest rates are negative… the U.S. government continues to print money with reckless abandon… and, while the GDX/GOLD ratio chart has pulled back from where it was last Monday, it still looks like it’ll form a higher low on this move – which keeps the uptrend intact.
Take a look at the updated GDX/GOLD chart…
The recent action in this ratio chart looks remarkably similar to what we saw in late March. The ratio triggered a buy signal when it made a higher-high (the blue arrows). But, the best time to buy was when the ratio dipped back down and formed a higher low (the blue circles), like it’s doing right now.
Last week, I mentioned this when we first presented the buy signal…
Of course, it won’t be a straight shot higher. Gold will have plenty of pullbacks along the way.
But, as long as the gold stocks are outperforming gold – meaning as long as this ratio chart is making higher highs and higher lows – then gold is in rally mode. And, it’ll be higher in the weeks and months ahead.
Traders should use any weakness in the price of the metal as a chance to buy. We’ve started another multi-week rally phase for the price of gold.
Friday’s action gave us our first bout of weakness since last Monday’s buy signal. Traders should take advantage of it as a chance to buy gold.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Did you get in on last week’s gold trade? If not, will you be taking Jeff’s recommendation this time around?
Let us know your thoughts – and any questions you have – at [email protected].