{"id":37396,"date":"2013-04-08T23:07:24","date_gmt":"2013-04-09T03:07:24","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37396"},"modified":"2013-04-08T23:07:25","modified_gmt":"2013-04-09T03:07:25","slug":"gold-bulls-about-to-win-the-war","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/08\/gold-bulls-about-to-win-the-war\/","title":{"rendered":"Gold Bulls About to Win the War"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

If you\u2019ve ever thought about buying gold<\/strong>, but never quite got round to it \u2014 in the space of a week, the market just gave you three huge reasons to \u2018back up the truck\u2019.<\/p>\n

The incredibly bullish set up is at direct odds with the poor price performance, which saw gold dip as low as US$1540 last week.<\/p>\n

This dip in the price is our friend: after all we\u2019re meant to buy gold \u2018on the dips\u2019<\/strong>.<\/p>\n

So when gold pulled back last week, I put my money where my mouth is…<\/p>\n

Here\u2019s part of the latest addition to the Cowie retirement fund:<\/p>\n

\"Buy<\/div>\n

\nAnd if it gets cheaper still, I\u2019ll buy more.<\/p>\n

Let me explain what I\u2019m seeing that makes me think a turning point is getting close…<\/p>\n

What to Do When Investment Banks Say Sell <\/h2>\n<\/p>\n

Back in late 2008, institutional analysts were tripping over themselves to downgrade their forecasts on gold…right before gold started a 180% rally.<\/p>\n

The fact is that consensus institutional forecasts on gold have been consistently wrong for the last ten years. You could trade gold perfectly by doing the exact opposite to what the big investment banks recommend.<\/p>\n

In other words, when they say \u2018sell\u2019…you should buy<\/a>.<\/p>\n

So it\u2019s exciting to see more and more big banks are calling gold<\/a> a \u2018sell\u2019.<\/p>\n

Last week, the gold forecast <\/strong>that got all the attention was from Societe Generale (SocGen), a French multinational banking company with a market cap of around $20 billion.<\/p>\n

They called for gold to drop to $1375\/ounce<\/strong>.<\/p>\n

Frankly I\u2019m surprised that the market paid so much attention to the SocGen report. But it popped up across the mainstream financial media, as well as financial blogs and other newsletters. It was emailed to me about twenty times.<\/p>\n

Most commentators quoted it as though it was gospel! Yet no one seems to have checked out SocGen\u2019s insanely bad track record on gold…<\/p>\n

I\u2019d like to share with you what I wrote about this in a snippet from the Diggers and Drillers<\/a><\/em> weekly update from last Thursday:<\/p>\n

\n


\n\u2018The 27 page [SocGen] report was called \u2018The end of the gold era\u2019, making the case for gold to fall as far as $1375\/ounce. <\/p>\n

\u2018Everything about today\u2019s gold market reminds me of late 2008: the fundamentals, the technicals, the bearishness, the institutional downgrades, and the market action. <\/p>\n

\u2018And now we have Jesper Dannesboe, who co-authored this week\u2019s Soc Gen report, who also got it tragically wrong back in 2008<\/strong>. I\u2019ve dug into the archives for you to show you what he was saying back then.
\n <\/em><\/p>\n<\/blockquote>\n

SocGen sell to be a contrarian indicator to buy again?<\/h2>\n<\/p>\n\n\n\n\n
Oct 31 2008<\/em><\/td>\nContext: Eight days after gold bottomed out at an intraday low of $680, and at the start of a monster rally that took gold to $1920 over the next three years:<\/p>\n

\u2018The most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels … Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold … I think gold is going below $600 in this cycle.\u2019 Source<\/a><\/em><\/td>\n<\/tr>\n

Nov 18 2008<\/em><\/td>\nContext: Gold was at $740, and would jump 11% to $820 within a week: <\/p>\n

\u2018The bullish story on gold based on fears of inflation is dead,\u2019 Source<\/a><\/em><\/td>\n<\/tr>\n

Jan 6th 2009<\/em><\/td>\nContext: Gold was at $840: 24% above its intraday low of $680, and at the start of a three-year rally that would see gold gain 182%. <\/p>\n

\u2018Gold should be sold into rallies\u2019 Source<\/a><\/em><\/td>\n<\/tr>\n<\/table>\n

\n


\n\u2018Well…there were three years of rallies to sell into, which should have been plenty! This is what SocGen\u2019s calls look like on the chart.
\n <\/em><\/p>\n<\/blockquote>\n

\"SoGen<\/div>\n

<\/p>\n

Source: stockcharts<\/div>\n

<\/em><\/p>\n

\n


\n\u2018Then last year they called gold to soar to $8500, and it fell. <\/p>\n

\u2018So, their latest call for gold to fall could well be the best reason to buy that we\u2019ve had so far!\u2019
\n <\/em><\/p>\n<\/blockquote>\n

\nIn short \u2014 SocGen taking another swing against gold with the same weak argument that it had back in 2008 is a clear warning signal that a rally could be imminent.<\/p>\n

Since I wrote the above, the guys at Sprott Asset Management took SocGen\u2019s argument to pieces<\/a>. Part of their rationale brings me to the second big reason to start buying gold now<\/a>.<\/p>\n

(NB: you can watch my recent interview with legendary investor, Eric Sprott, by taking out a subscription with any Port Phillip Publishing paid investment service. Check out our latest offer here<\/a>… )<\/p>\n

You see, last week we heard that the Bank of Japan will DOUBLE their balance sheet over the next few years.<\/p>\n

Where This Goes, Gold Follows <\/h2>\n<\/p>\n

This is quite simply a game changer for the entire market<\/strong>: everything from bonds to foreign exchange, commodities, and equities.<\/p>\n

But it\u2019s gold<\/strong> I want to focus on today. There is a tight relationship between gold and the collective size of central banks\u2019 balance sheets.<\/p>\n

As balance sheets swell, gold rallies. You can see how closely the two track each other below in the chart from the guys at Sprott Asset Management.<\/p>\n

Gold Moves With Central Bank Balance Sheets<\/h2>\n<\/p>\n
\"Global<\/div>\n

<\/p>\n

Source: Sprott Asset Management<\/div>\n

<\/em><\/p>\n

Right now the major central banks have $9 trillion on their books \u2014 and Japan wants to add $1.4 trillion to that number by the end of next year.<\/p>\n

If the relationship holds true, this would convert to a 15% increase in the gold price<\/strong>.<\/p>\n

But hang on…didn\u2019t we use the same rationale about the US Fed last year? Wasn\u2019t the growth of their balance sheet meant to push up gold?<\/p>\n

Well, the Fed has bought $85 billion worth of US Treasuries and mortgage-backed securities a month, and gold has gone nowhere fast. But you\u2019ll get your explanation if you look closely at the chart above. You\u2019ll see that the total balance sheet has actually pulled back slightly in the last few months.<\/p>\n

Surprisingly, it\u2019s because the European Central Bank\u2019s (ECB) balance sheet<\/a> has in fact shrunk<\/em> by 10% this year.<\/p>\n

This would explain why gold has had a rough start to the year. The ECB\u2019s contraction cancelled out the Fed\u2019s expansion.<\/p>\n

However, the ECB\u2019s balance sheet has stabilised now, and with Slovenia and the Netherlands lining up to be the next Cyprus, it could be on the way back up very soon.<\/p>\n

Even if it shrunk at the same pace again, it would be easily exceeded by the combined growth in the balance sheets of Japan ($75bn) and the US ($85bn) of $160 billion\/month<\/strong>.<\/p>\n

Assuming no change from the ECB, and that the Fed and the Bank of Japan keep going at the current pace for another two years, this would equate to a balance sheet expansion of $3.8 trillion. This would add over 40% to the current global balance sheet of $9 trillion. As gold moves so closely with this, you could expect a roughly 40% rise in gold<\/strong>.<\/p>\n

It\u2019s dangerous to look exclusively at fundamental drivers, and ignore the positioning in the futures market.<\/p>\n

And this is where we get the third major reason to buy gold today<\/strong>. <\/p>\n

The Commitment of Traders Report<\/h2>\n<\/p>\n

This report analyses the positioning in the futures market, which \u2014 right or wrong \u2014 determines the price, at least in the short-term.<\/p>\n

And there is a keg of dynamite under the price here right now: there are a near record number of traders (\u2018managed money\u2019) trying to short gold.<\/p>\n

Just like journalists, these guys basically get it wrong every time.<\/a> You can use them as a good contrarian indicator.<\/p>\n

To show you their near perfect record of getting it wrong, I\u2019ve highlighted (in red circles) the times they have stacked on the biggest short positions in the last five years. Then I\u2019ve highlighted the corresponding periods on the gold chart (green circles on pink line). You can see that each spike in shorts has signalled a rally in gold.<\/p>\n

Traders Shorting Gold \u2014 So Get Ready for a Rally<\/h2>\n<\/p>\n
\"Managed<\/div>\n

<\/p>\n

Source: gotgoldreport<\/a><\/div>\n

<\/em><\/p>\n

Take another quick look at the chart. The two big spikes in shorts back in 2008 preceded the three year rally in gold<\/strong>. And you can see that today\u2019s short position is at far higher levels than back in 2008. It\u2019s at record levels, and has been for a few weeks now. This is a highly explosive situation.<\/p>\n

I suspect we\u2019ll see volatility both ways at first as they defend their trade, but almost certainly this ends in a big move up.<\/p>\n

Because there is a real chance these guys are going to have to \u2018cover their positions\u2019 if gold rallies just a little bit. Each trader doing this will raise the price, and cause another trader to follow suit. They are like a large group of mountaineers all tied together with the same rope. When one falls, the rest will follow in spectacular style. It would be enough to cause a massive move in gold.<\/p>\n

Watching the gold price<\/a> trending calmly down, you\u2019d never imagine a war was waging below the surface of the market.<\/p>\n

But a war it has been \u2014 and one that gold bulls<\/strong> are about to win.<\/p>\n

Dr Alex Cowie<\/a>
\nEditor, Diggers & Drillers<\/em><\/strong>
\nJoin me on Google+<\/u><\/strong><\/a><\/p>\n

From the Port Phillip Publishing Library<\/strong><\/em><\/p>\n

Special Report: TORRENT SIGNAL 3 <\/a><\/p>\n

Daily Reckoning<\/em>: Our Largest Asian Trading Partners Are in Trouble: China and Japan<\/a><\/p>\n

Money Morning<\/em>: A Better Inflation Bet Than Gold…Stock Market Investing<\/a><\/p>\n

Pursuit of Happiness<\/em>: Why the NBN is Dead Before it\u2019s Begun<\/a><\/p>\n

Diggers and Drillers<\/em>:
\nWhy You Should Invest in Junior Mining Stocks<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au If you\u2019ve ever thought about buying gold, but never quite got round to it \u2014 in the space of a week, the market just gave you three huge reasons to \u2018back up the truck\u2019. The incredibly bullish set up is at direct odds with the poor price performance, which saw gold dip as … <\/p>\n

Continue reading “Gold Bulls About to Win the War”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-37396","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37396","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=37396"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37396\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=37396"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=37396"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=37396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}