Is Gold Entering a New Bull Market?

In my annual outlook (The Year Ahead – 2016), I highlighted several big-picture indicators that might corroborate the next bull market in gold bullion. Here’s another market-based indicator which is likely to provide the next important clue.

The new indicator is based on commitment-of-trader (COT) activity published weekly by the CFTC. To indicate a primary bull market, gold must generate sufficient strength to overcome normal resistance from extreme COT positioning. This test is now underway, as COMEX large speculators have become extremely long. On the flip side, commercial traders are extremely short. (See chart below.)

The proposition is as follows. If gold remains in a bear market, commercial-trader selling should contain price at or about current levels. If gold is entering a bull market, price should ignore commercial-trader selling by printing new highs, as in the many examples from 2001-2011. Look for a “failed signal” to indicate strength of underlying trend. This could take several weeks to resolve, but is definitely worth watching.

Bottom line? Expect gold to roll over soon if bear-market forces remain intact. Substantial new highs above $1250, however, would indicate a major trend reversal. What a market doesn’t do is sometimes more important than what it does. Extreme COT positioning is providing an important test of supply and demand.

© Mark Ungewitter Research

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