A long-time bear on investing in gold bullion seems to have flip-flopped.
Now he’s bullish, and how!
JC Parets, who founded and runs technical analysis firm AllStarCharts.com now sees the price of gold bullion heading towards $5,000 a troy ounce. Among other things, technical analysts use price charts to predict where asset prices may go next.
Active month gold futures were recently changing hands at approximately $1,824 an ounce on the CME. But prices for the traditional safe-haven asset have traded in a range from around $1,640 to $2,035 since early 2020, which was the year the COVID-19 pandemic erupted.
The SPDR Gold Shares (GLDGLD0.0%) exchange-traded fund, which holds bars of solid bullion, followed a similar pattern of ups and downs with a range.
“It’s been two years since gold hit new all-time highs,” Parets and his team write in a recent report. “And, while it hasn’t gone anywhere since, it has remained buoyant.” His emphasis.
The report continues as follows:
- “As frustrating as this range-bound market may have been from a trading perspective, it has revealed an impressive amount of underlying demand.”
Put simply, the fact that bullion prices haven’t sunk like lead piping means there are buyers who are helping keep the price robust.
So why won’t this sideways range in prices continue ad infinitum? There are a few reasons.
First, the report notes that commercial hedgers are reducing their positions. Commercial hedgers are people in the gold industry, such as miners and jewelers, who use the futures market to manage price risks.
As the hedgers reduce their positioning the market could take off. Often miners sell futures contracts to ensure they get a firm price for the gold they extract from the ground. That works for the mining company but it also means there is downward pressure on the bullion price. When the miners stop hedging the downward pressure is removed.
The report states it this way:
- “Their [commercial hedgers] positioning reached levels corresponding with significant bottoms for gold in 2016 and 2018. This doesn’t necessarily mean a bottom is in for gold, but it does imply the stage is set for an explosive rally.”
The ‘bottom’ refers to a time when the price of gold stopped going down and commenced rallying.
What the report is also saying is that sure, gold prices may go down from current levels but the pieces are in place for a sharp upward move in prices. The report continues like so:
- “An unwind in commercial positioning will likely spark the next sustained rally in gold. And, considering the run precious metals have enjoyed off their lows from this fall, maybe it’s already starting.”
The report points to the epic price move from less than $425 in 2004 to more than $1,900 in 2011. That’s a gain of around 350%. A similar move this time would see prices go to above $8,000.
“First, of course, it has to reach 5,000. It’s basic math, but it could come sooner than many expect,” the report states. [My emphasis.]
The report also points to possible rallies in silver, as well as precious metals mining companies.