Tuesday, March 8, 2016

Gold: Avoid The Trap

Contrary to what most investors and gold buyers believe, the rally we've seen in Gold (GLD)($GOLD) in 2016 is just a counter-trend rally within a multi-year downtrend. Gold is only a few months removed from 6-year lows, and we haven't even truly seen panic and capitulation normally associated with a long-term bottom. Simply put, gold was due for a "bounce" or a "breather" before it can continue its decline. Don't get too excited!

Gold is in the midst of a major long-term bear market, ultimately headed to what I predicted in 2011: $700/oz.

Everyone has already seen the massive collapse which cut gold prices by nearly half, from the September 2011 high above $1900 to approximately $1050 by December 2015. Yet though gold has been performing very well so far in 2016 (already above $1250), it is inevitably doomed to resume the downtrend. My research strongly points to a further decline, including sharp drops and even price crashes as the "Gold Bubble" unwinds.

Though gold is, in our opinion, on its way to $700, it could not do so all at once. Trends and cycles do not exist in straight lines, and gold (like all other bear or bull markets) moves in fits and starts, switching on and off between sharp declines and counter-trend rallies. What matters most, however, is the long-term trend. And though gold bulls are convinced the worst for gold is now behind us, it is exactly this gold bounce or "false recovery" that tricks them into jumping back in right before the next plunge.

Gold could either reverse back to the downside right now or could continue to recover higher, but why buy gold when the upside is limited? If the bounce continues, gold has major resistance at $1300, $1400, $1550, $1600, and $1800; plus it is very unlikely that gold could even break above $1600 for many years to come.

Even if gold does continue higher, there are much better alternatives. Though many would like Gold to be considered a Currency, it has been trading like a Commodity. If commodities continue to recover from their major bear market, you'd be better off investing in Energy (USO)(UCO)(XLE)(UNG), Industrial Metals (AA)(X)(CLF), Coffee, Sugar, and even Platinum. The stock market doesn't look like a screaming buy, but even a simple Index Fund (SPY) could outperform Gold (GLD) going forward.

If you missed the bounce, move on.
This is not a new bull market, just a trap.
Gold is a lose-lose situation and a broken trend.
Don't double down, don't fall for it again, don't be a sucker.


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