The Path Forward for Gold

The gold metal ETF, below on the zoomed-out daily timeframe, has not precisely tested its 200-day simple moving average (yellow line, arrow) in more than two years. In that regard, the move we have seen has obviously been an incredible outlier. It is all too tempting to declare a major, multi-year top to gold, as many are now doing, given Friday's implosion and today's follow-through lower. 

However, gold was, and likely still is, vastly under-owned by most investors.

In doing my own personal channel checks, I was assured by trustworthy sources (i.e. highly regarded coin shop owners) that retail speculators and long-term investors in physical gold were disproportionately selling their gold into this rally rather than than buying more. Granted, this is essentially anecdotal evidence on my part with a relatively small sample size. 

But the larger point holds--The move higher in gold, silver, and the metals of course had more retail participation and excitement than anything we have seen out of this asset class since at least 2011. When compared to the Magnificent 7/AI/tech, though, the retail fervor in gold pales in comparison. 

Put another way, my view remains that the metals, miners, and commodities at-large are just getting started on a multi-year bull run.

Beyond that, the Kevin Warsh theories about how he is the second coming of Paul Volcker are both absurd and ridiculous. Anyone espousing such nonsense clearly has not studied history. In fact, Volcker himself raised the Federal Funds Rate well into double digits, and even mounted a surprise 200 basis point weekend rate hike only to see gold rally in his face anyway.

The point being: One does not simply immediately crush inflation and commodities simply because President Trump thinks you look good in a suit and in 2008 you were a hawk. 

Overall, I expect the GLD ETF to finally test its 200-day moving average sometime in the first half of this year. That said, the 200-day could just as easily rise up to price, basing sideways, as the price could drop down to the 200-day. My larger focus is on allowing the group to reset for a fresh round long entries just as the recent froth abates. 

One viable scenario could be the buildup to Warsh taking over in his official Fed Chair role in May. If we grind sideways or lower into that moment it may very well set up an ideal secondary long-term long entry just as many would be throwing in the towel.