Is this the start of a new bull market for gold?

Gold bar © Getty Images
Gold: don’t get carried away

I’m afraid ten years of gold investing has given me a bit of a personality disorder.

On the one hand I’m a gold bug loon – one of those nutcases you hide from at parties when they collar you and say: “buy gold, buy gold, our monetary system is doomed!”, and then harangue you with a load of statistics about US national debt.

But on the other, I’m a total cynic. Every time gold rallies, I just don’t believe it. False golden dawn after false golden dawn has turned me into a total non-believer.

But you’d have to be living a rather secluded existence not to have heard that gold has had quite a run this month.

So is this one the real deal? Or is it yet another false dawn?

Gold has had a cracking month so far – but don’t get carried away

Let’s start with some numbers.

At the start of this month, gold hit an intraday low of $1,240 an ounce. Since then, it has rallied by $82, hitting an intraday high of $1,322 at the end of last week.

Pretty impressive.

The gold miners – remember them? – have been knock-out. From low to high, the usually turgid seniors (as measured by the Arca Gold Miners index in the US) are up almost 20%, the junior producers (as measured by the Market Vectors Junior Gold Miners index) and the explorers (the Solactive Global Gold Explorers index) are up over 30%.

If you traded that well, you can take the rest of the year off. It’s like the good old days.

I’ve enjoyed two monster periods in gold and gold shares – 2005 to early 2008 and then late 2008 to mid-2011. I’ve also experienced two horror shows – 2008 and 2011 until now.

And if there’s one thing I’ve learned, it’s that gold – and gold speculators – are verging on the bi-polar. It’s all or nothing.

The mistakes get made when you get carried away by the hysteria. I was having a drink with a gold broker on Friday and she told me that the phone, having been dead, had suddenly not stopped ringing with ‘buy’ orders. Where were all these people at the beginning of the month when gold was $80 cheaper?

When gold goes vertical, it rarely ends well. Avalanche tends to follow rocket launch.

So my initial instinct is one of caution. If you don’t have a position in gold, be patient. It’s horrible watching gold companies rocket when you’re on the sidelines – I totally get it – but let the excitement settle before you take a position.

I don’t think gold is going to collapse from here, but I think some kind of pullback is pretty likely – perhaps to the high $1,200s.

Back in May, when gold was about $1,300 – not far off where it is now, but sans hysteria – I suggested we would drift lower into June and that, when I wrote another piece on gold in a few months’ time, we’d probably be back where we are. I’m sticking with that.

At the beginning of this year, I think I suggested we’d see a high of $1,425 and a low of $1,050. That range now looks far too wide. It looks like the low was $1,180 – made in June 2013 (the lows always come in June, by the way) and re-tested in December.

At least that’s how I’m interpreting things. If events change, I reserve the right to change my mind.

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The long-term outlook remains promising

So, the bottom is in. And I think we’re in the early stages of another bull market that’ll take us a bit higher by the autumn, and a lot higher in a couple of years. I like the way the moving averages are all lining up. Gold supply won’t be great in the coming years (not enough new discoveries). And there’s plenty of money elsewhere to come back into the sector.

$1,475 this year? Probably too ambitious, but certainly the high $1,300s or even low $1,400s looks possible. But it will not be one-way traffic – it never is.

This last month has been gold ringing a bell saying: “Hello, I’m here.”

What’s encouraging is that it has revealed that there is still an interest. When money moves in, things can happen very quickly indeed. On a relative basis, gold and silver are both starting to look very attractive. The gold miners, for all their problems, are about as cheap as they’ve ever been.

And what I find most encouraging of all is that this move was both anticipated and confirmed by the gold miners. If a bull market is to happen in gold, the miners have to lead. When people buy miners they do so believing higher gold prices are ahead, so you want to see miners leading.

But there is a lot of resistance at $1,320 in gold and at $21 in silver. In all likelihood, it will take a couple of pullbacks to get through – pullbacks we’ll probably see over the summer. In fact, one may just be starting now. My advice is take advantage of them and accumulate.

I actually sold some gold shares this week to try and keep my discipline. I’ll be buying them back in the weeks ahead.

You can use exchange-traded funds to play the gold stocks, or of course you can look at your favourite individual ones. (MoneyWeek’s Simon Popple writes a newsletter on gold miners, which you can find more about here).

And, of course, if it’s physical metal you want, the exchange-traded funds are ETFS Physical Gold (LSE: PHAU) or ETFS Physical Silver (LSE: PHAG). You can also buy physical gold through dealers such as Goldcore, BullionVault and Goldmoney.

If there’s interest, I can also profile a few specific companies over the summer – let me know in the comments below.

If you do buy in over the summer, for goodness sake manage your risk. Make sure you have a contingency plan in place in case my interpretation is wrong.

Having said of all this, I’m now going to watch as gold rockets straight to $2,000 and prepare myself for the angry emails I get telling me off for recommending patience.

• Dominic Frisby’s Bitcoin – the Future of Money? is out soon. But you can still get your name in the back.

• Metals and Miners is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Forecasts are not a reliable indicator of future results. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600.

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11 Responses

  1. 25/06/2014, dialucrii wrote

    Yet another article on precious metals that makes no mention of the relevant macro-economic factors or the manipulation issues. Yet another article from Dominic saying “maybe gold/silver will do this, maybe gold/silver will do that, I think it will do this but I reserve the right to change my mind and say it will do that instead” with little or no mention of either fundamental or technical analysis to support his conclusion, in the unlikley event you ere even able to draw a conclusion from the article. I certainly can’t and even if I could I’d be aswell looking to my own tea leaves for a more considered analysis.

  2. 25/06/2014, I've been playing gold for a few years now and have experienced the highs and lows you discuss, having made some good money early on and then losing and then some. I'm still holding various miners waiting for them to return to profit, but any further wrote

    I’ve been playing gold for a few years now and have experienced the highs and lows you discuss, having made good money in the bull run and then losing it again (on paper) and then some. I’m still holding various miners waiting for things to improve but any specific company tips you have using your experience and industry contacts would be most welcome. I get married this year and need to buy a house!
    Maybe I should have just bought a house 2 years ago….

  3. 25/06/2014, Chester wrote

    I’m not so sure the bottom is anything like “in”. It’s nice to see Money Week finally recommending sensible risk management to gold buyers, but to assume that it get’s better from here, albeit with an element of volatility, is probably optimistic

    Some expect this bounce to spike around $1350 – 1370, after which $1130 could be the next support target. With indicators pointing to further significant lows beyond that, getting into physical gold now could be risky unless you are lucky enough to bank a small upside by selling at the next downturn

  4. 25/06/2014, francwel wrote

    Your comments and reported experience in gold/silver investing keep me interested.
    I’ve held African Barrick for some time now. It provides a ray of sunshine when the ordinaries markets are under thunder-clouds. I would like to give it a twin as much to keep my portfolio balanced as to play a possible bull run and shall be watching for your next advice.

  5. 25/06/2014, les wainwright wrote

    aslayman we need2know practically if gold rockets or ifit becomes a gold standard again owdus that workout which currency cud replace dollar cud it b the euro and 2sell ur gold r u not just gettin fiat currency for r gold.thx

  6. 25/06/2014, Daniel55 wrote

    Hello

    On the general topic of gold prices (one perhaps asked in other forums), can anyone provide a reason why gold shouldn’t or wouldn’t go back to its pre 2000 price?

    According to this and other articles, gold miners would go bust if gold prices dropped further. But what where they doing when gold was $400 to $300 an ounce?

    Many Thanks

  7. 25/06/2014, Boris MacDonut wrote

    Gold is up by less than 3% in the last month and also in the last year. This is the start of nothing at all. Deflation is coming soon.

  8. 26/06/2014, Ellen14 wrote

    There are obvious problems with trying to predict a market as manipulated as the gold market, where most of the market is not even gold, but paper. Predictions in upward movements in gold really reflects a lack of faith in currencies, particularly the US dollar. So, for me, as long as central banks are able to keep their scams going, there is little point in making any predictions other than the power central banks have to continue to manipulate the gold market. Look at Mark Carney, for instance. The moment he got some faith going in the pound by hinting at interest rate rises, he retracted it again, specificall, I presume, to pull the pound back a bit. Our whole money system is based on the soundbites of a few central bankers, who can change direction at any moment in time. That is exactly why everybody should own some gold or silver.

  9. 26/06/2014, Ronnie.b wrote

    Very interesting article with which I agree. Would very much like to have your views on specific companies to invest in, preferably with solid underpinned earnings.

  10. 28/06/2014, dialucrii wrote

    @Boris

    The definition of inflation is an increase in the monetary supply. Rising prices are only a symptom of that increase in the monetary supply. The reason we are not yet seeing that symptom is because of the slow down in the velocity of money that is accompanying the current deflationary pressures, but ask yourself this – if the deflationary pressures prevail as you are suggesting then how will the world’s central banks respond? – being as petrified of deflation as they are, I guarantee you they will return to the printing presses and increase inflationary pressures. You might have a prolonged period of deflation first but one way or another price inflation is inevitable. We are already seeing it in asset prices and although governments refuse to acknowledge it, we are also seeing it more and more in consumer prices.

    You clearly know your onions when it comes to property Boris but you obviously haven’t done your homework on gold, like many of the MW commentators I’m afraid. Gold is and always has been a measure of the confidence in the currency of the day and manipulating it downwards is a must if you’re going to print vast sums of the currency in which gold is valued. That manipulation will end eventually and when it does the gold price will rise substantially to reflect the ridiculous volume of dollars that have printed and the associated loss of confidence in the dollar as a result. Associated with that rise will be a rush into the sector which is why substantial profits will be made by those positioned early enough in precious metals and miner shares over the years to come.

    Unfortunately too many people are guided only by their experience of markets in the last 40 years that they are unable to imagine/understand how the world changes when the very “rules of the game” that world money plays by are changed entirely. They think they know markets work and they might, as the system stands, but when the system is changed the things they thought they knew no longer apply. In those times, throughout history, only precious metals have preserved wealth. It’s going to be an interesting few years.

  11. 02/07/2014, sigcima wrote

    Dominic – please could you take a fresh look at Gold Bullion Development Corp. Regards

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