cotd 2

It’s still too early to enter the metals sector.

As always happens after a strong rally in anything, traders begin to anticipate another leg up. They buy the first corrective move back down because they missed the initial rally, and they don’t want to miss the next one. This is the current setup in the metals sector.

However, all markets are subject to regression to the mean. When price gets stretched too far in one direction or the other, one of two things has to happen. Either a correction back to the mean has to take place, or price has to go sideways long enough for the mean to catch up.

You can see in the next two charts that both gold and miners have gotten stretched extremely far above their 100 day moving averages. Too far, in fact, for there to be much chance of a continuation of the metals sector rally until price either corrects or goes sideways for a couple of months to allow some time to work off the stretch.

The dollar is overdue for an intermediate rally and the COT Blees rating has been at a maximum bullish 100 for several weeks now. Gold, on the other hand, is now at the maximum bearish Blees rating of 0. Presumably, once the dollar starts to rally, gold will proceed to correct this stretch. So I’m going to suggest you ignore the emotional analysts calling for an immediate resumption of the gold rally.

As always, emotions are never the best investment tool. For now, wait a couple of months for the dollar to rally and gold to correct before jumping back into the metals sector.

The single best tool to tell you when the time is right to buy is how hard it is to pull the trigger. If it’s easy to buy, and you are afraid of missing a move, then it’s still too early. If you are sweating bullets and you have to have your wife push your finger on the mouse because you can’t make yourself do it, then it’s probably the right time to buy. The time to buy is when you are scared to death to pull the trigger. I would argue that no one is scared of the metals sector, yet.

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    1. Gary Post author

      Lately the dollar hasn’t had any effect on stocks or oil. Oil is getting well into the timing band for a cycle low. Once it bottoms and starts back up I expect it to add even more force to the rally in stocks.

  1. Bud Fox

    There is one emotion that EVERY TRADER can’t control.

    The fear of missing out in large gains.

  2. mike trike

    I don’t see any analysts bullish on gold right now. Everyone I read is bearish or neutral.

    1. Gary Post author

      The current gold sentiment level is at 53. It doesn’t have to go all the way back to 20% bulls durining a bull market but I would like to see it at least reach 40% and I want to see what happens as the dollar rallies out of its intermediate cycle low.

      Next week is the 18th week of the cycle. Usually not the best time to start buying.

      My original expectation is that the correction would mostly be a very choppy and erratic sideways move that may take 5-6 weeks to play out but not actually move gold or miners much lower. Maybe only another 50-70 points down in gold.

  3. Jacob 2

    Janruary 17 was golds ” too hard to pull the trigger day” and March 29 th was it for the bio’s.

  4. Mike R


    What happened to your call for a metals correction in April, then a bullish resumption in May??? Now we have to wait “a couple months.”

    1. Gary Post author

      Well the correction started in the middle of March, and my expectation has always been for the next ICL sometime in May.

  5. Alister

    Gary, quietly I have been following your advice for two years and have done better than the average bear…making some money even with gold trending down. But what is troubling me now is hearing Jim Rogers keep talking about how he plans to buy gold even cheaper in the next few years….Jim does not see that the bottom in gold has been hit…

    1. Gary Post author

      Jim has been wrong on a lot of his calls. I think he’s wrong to short the stock market. And I think he’s wrong to expect a lower low in gold. We will know in a few weeks. Stay on the sidelines for now and we’ll see where the next ICL takes us sometime in May.

      1. Bill

        I’d rather belive my crystal ball before Rogers he’s just another doomer pusher who has been wrong on nearly all his calls .

  6. James Taylor

    If the miners consolidate sideways, then the BTFD strategy would be better than waiting for the “too scared to pull the trigger” mindset which would not occur in that case.

    Friday’s action in the HUI was impressive considering the PM paper price beat-down as usual on BLS-BS day. This seems to me to be a change in character for this sector.

    Someday the black swans circling overhead will crap on the chart followers, especially if there is an overnight or over-weekend PM revaluation higher while they sit on the sidelines.

    1. Gary Post author

      Every ICL has a scary decline right at the end. If you buy a dip now and then panic out for a loss during the final bloodbath phase you end up making the classic mistake of buying high and selling low. Most people are not able to hang on through a bloodbath phase. Hence the name bloodbath 🙂

  7. Irwin

    There’s a big difference between these two statements.

    “I expect gold price to go much lower”.

    “I would be a buyer of gold at lower prices”.

  8. Kirk

    Thank you for your candid opinion on the markets particularly as it relates to gold.I also have a service with Edelson and he is warns getting into not gold per say but miners still have a ways down 140 on hui about end of May.I will listen to experts.
    God Bless

  9. Philip Brooke

    Gary, your article refers to “the following two charts” but there are no charts that follow, do you have the charts or a better link?

    (Talkmarkets editing team)

  10. Will

    The only bloodbath phase will be to the upside
    Clearly momentum has switched in this market to the upside.
    Buy and hold
    Miners relative to gold is still historically at extreme low levels even with this latest run up.
    This has been in one of the ugliest bear markets in history.
    The suprises will be to the upside regardless if we are in overbought situations. The whole world and theirs mothers are bearish on gold today ( short term). All those short positions must be bought back eventually. It will just feed on itself.

    Inversely the USD can stay in oversold conditions for a longtime aswell.
    We shall see.

      1. Will

        I believed aswell that a retest of the breakout was coming last month. Seeing beatdown after beatdown after beatdown the last couple of years
        this market is only giving back what we have been seeing the last month.

        It’s all in what ur after
        Short term trades or longer
        I definitely see and read a lot more short term shanaigans then the bigger picture

  11. El Lobo

    Short USO and DJP as of the close on Friday. Good chance an intermediate top is in. Major trend still down.

  12. mike trike

    Here is a different, bullish view on GDXJ from Spock at goldtadise.
    Spock correctly called the bottom in the miners and has been quite accurate since I have been reading his posts.

    I haven’t sold a single miner share since this rally began, except to buy other miners. I sold all my call options but am going to go “Old Turkey”, hopefully over the next few years.

Comments are closed.