…The next dip in the price of gold could be a doozy [yet, while] such a move would be an incredible buying opportunity…[many] investors might be too scared to buy – and that’s an opportunity for those among you with steel in your spines.
The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by Sean Brodrick (UncommonWisdomDaily.com)
- …the SPDR Gold Shares (GLD) — the world’s largest commodity ETF — saw the biggest outflow among commodity funds in the week ending April 28. I’ve told you how gold banged its head on a big downtrend. This downtrend has been in place since 2011. It’s no surprise that gold can’t punch through it the first time.
- The real carnage was in miners. The VanEck Vectors Gold Miners (GDX) — the biggest ETF that invests in gold-mining companies — saw its largest outflow on record. In all, $778 million flowed out of the GDX in just one week. You can see that on this chart from Bloomberg.
We expect miners to over-emphasize the move in gold. That’s because miners are leveraged to the metal but, after selling off on Monday, gold traded fairly flat last week so, we might be seeing selling in miners in anticipation of a deeper sell-off in gold.
Could we see a sell-off in gold?
One of the best indicators of gold prices is real interest rates, or interest rates minus inflation. There are multiple interest rates to choose from. Below is a chart of the Fed 10-year Treasury yield minus inflation. The black line with a tan fill. I’ve charted gold against it as a blue line. In the chart you’ll see that:
- the real 10-year yield was recently 1.93%. That’s different from Friday’s headline 10-year yield of 2.28% because I deducted inflation.
- the real 10-year yields peaked in January. They’ve slid lower ever since. They bounced last month. At the same time,
- gold has been in an uptrend since the end of December. It recently peaked at the same time that the real 10-year yield bottomed – [and] that’s not a coincidence.
- I think the real 10-year yield could rally up to that downtrend. That in turn, should push gold lower, though there are no guarantees…
- That happens because the real yield reflects what you get on a Treasury minus inflation. If inflation is eating up your Treasury yields, you look for other investments. Perhaps one that is historically a hedge against inflation – like gold.
…That’s why I watch the real interest rates as one of my indicators of where gold might go next.
This is all short-term stuff. Longer term, gold looks so bullish that I almost laugh at the bears. They’re standing in the path of history’s steamroller. One fundamental force after another is lining up to push gold higher.
Am I anticipating a deeper pullback in gold and mining shares? Yes. If it happens, will I jump on that opportunity? You bet your sweet assets I will.
You might need a golden seatbelt to get through the next part of the precious metals rollercoaster. The dips could be heart-stopping. The turns could leave you dazzled, but the time to buy is coming. These kinds of opportunities come very rarely. Be ready to act. History is on our side.
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