These Charts Give a Clue About Where the Gold Price is Headed

The price of gold has been going through an anxious bottoming period and now seems resolutely back above $1300. But what’s next?

Look at the following chart:

Basically, this chart shows the difference between commercial long and short positions. The green dots are positioned at intermediate low-points in the price of gold, which are also points where commercial net longs are at relative highs. This is no coincidence. The commercials are major players in the market. They hedge against price fluctuations rather than speculate. They reduce their short positions near significant price bottoms. If you could go back in time, the green dots would be your buy signals. This chart shows commercial short positions at the lowest point in a very long time — more than ten years. Where do you think the newest green dot will appear?

Now look at this chart, which is a little different.

This also illustrates how the falling price and increase in commercial long positions generally foreshadows a meaningful rally for gold. If I were to judge from this chart, I’d say we should expect a significant expansion of commercial longs. The price of gold should correspondingly rise. Here, the red dots are the buy signals. Where do you think the newest red dot would go?

As a conservative estimate, if we saw a rally comparable 2005 and 2008’s moves, the next phase of the gold bull market would approach $2000/oz.

This process is likely to unfold as the current business cycle matures, over the next one or two years  Then when another panic hits, gold will sell-off until central banks accelerate their monetary interventions. They will do this to fight the onset of a crushing economic depression.

— Read more at King World News


2 Responses to These Charts Give a Clue About Where the Gold Price is Headed

  1. when the gold price was taking a few weeks ago many people were buying, i wonder when the people will start to sell again and at what price will it take. What do you think?

  2. CMR says:

    Gold has been selling off in the last few days, bringing it back below $1300. Everyone is dreadfully concerned that the Fed will “taper” and therefore remove support from all the economy’s systemically misallocated capital. This puts pressure on gold as it reduces expectations of inflation.

    Note that this is exactly what the Austrian economics tells us about the business cycle. When the central bank adds money, money enters the capital markets and is misallocated. The economy becomes dependent on this new money and it recoils violently when the monetary expansion is expected to slowdown or reverse.

    Speculators will sell gold as long as they anticipate Fed tapering. Personally I don’t think the Fed is going to taper in any meaningful way.

    Chinese people will keep buying physical gold though.

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