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Even the Mainstream Sees a Buying Opportunity in Gold

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Gold has had a tough few months. A dollar rally and rising interest rates have weighed on the yellow metal, driving the price down nearly 8% over the last three months. But as Mike Maharrey pointed out on last week’s Friday Gold Wrap podcast, gold is on sale right now and that means a buying opportunity. Smart shoppers shop sales. Now may the be the perfect time to buy gold.

Mike isn’t the only one who sees opportunity in the gold market right now.  Some people in the mainstream see it too. In fact, a CNBC Trading Nations headline yesterday declared that even though gold is having an “ugly year,” it has led investors to a buying opportunity.

There are a number of reasons to conclude that gold will rally in the not too distant future. In the first place, we should always look at the fundamentals. There are signs of rising demand in India and China along with falling mine output. A recent World Gold Council report highlighted three macro trends that look good for gold in the second half of this year, including positive economic growth in the world’s leading gold consuming countries, rising inflation and the impact of the trade war.

The strengthening dollar has served as the primary force pushing the price of dollar-denominated gold lower. The question is can the dollar rally last? Peter Schiff has been skeptical of the strengthening dollar, calling it a “bear market rally,” and the IMF recently called the dollar “overvalued.” During a precious metals conference in Singapore, TD’s Bart Melek predicted gold will rebound in 2019 as the dollar weakens.

The report on Trading Nations was bullish on gold for a more technical reason relating to the speculative futures market, but it’s worth noting.

Bill Baruch looked at the commitment of trader data and found that managed money short (bearish) positions have outweighed long (bullish) positions for four weeks now, amounting to a near-record net-short position. In fact, according to Commodity Futures Trading Commission (CFTC) data on Friday, gold contact shorts hit a record high. Typically, managed money longs outnumber shorts. Barauch said we’ve only seen this pattern twice, both times preceding gold rallies.

The first time was in July 2015. Gold bottomed within two weeks, and rallied 11%. The second such time was in November 2015, and gold bottomed within three weeks before ultimately rallying 32%.”

In a nutshell, this could be a sign that the market has overbought and is ripe for a price correction. As one precious metals strategist put it, this net-short position means we could soon see short-covering that pushes up prices.

We generally focus more on fundamentals and economic dynamics rather than this kind of technical analysis, but it’s worth noting because it provides more evidence that gold is on sale and this may well be a significant buying opportunity. After all, it’s not often you hear people talking positively about gold on Trading Nations.

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