- Money Morning Australia

Gold’s Dark Hour Before Dawn

Written on 01 March 2013 by Dr. Alex Cowie

Gold’s Dark Hour Before Dawn

This Wednesday, at 5.25pm, Diggers and Drillers readers got an email from me with a bold prediction.

I’ve put myself squarely on the chopping block in saying that:

‘…We can expect gold to start a multi-month rally that could see it close to or even above a new high by the middle of the year. ‘

That would require gold to rally 20% in the next four months.

It’s a bold call, but in the last few weeks, three long-dormant alarms went off to warn me of a major move in gold.

Each one was enough on its own to suggest that the game is back on.

But in combination, they were yelling at me to sit up, pay attention, and get ready to make some money from gold – and gold stocks

The first of these ‘top secret indicators’ is shouting that the gold supply has dried up. No one is selling. And if the market wants more, the market has to start paying far more for it.

It wouldn’t be fair to Diggers and Drillers readers for me to reveal too much about this indicator, but I can tell you that since 2008, every single time the indicator hit a certain level, gold went on to start a 20%-30% rally straight afterwards.

I’ll be clear – this indicator has had a 100% strike rate predicting big moves in gold, and that is a track record to pay attention to.

This is possibly the most exciting thing to happen to gold since the US debt downgrade in August 2011 sent it soaring $300.

So know this: this indicator has already crashed through this level and just keeps falling.

It’s already at a three year low, which warns us of a major move brewing.

But last night it fell again – in a big way.

It’s now a gnat’s whisker away from reaching levels not seen November 2008, the depths of the GFC. Back then, such low levels for this indicator shortly preceded gold doubling inside of two years.

If you’ve been watching the gold price in recent months, my big call on gold may sound like the ramblings of an overexcitable madman.

As you can see in the chart below, gold has been anything but strong recently. In fact it has just seen its fifth consecutive month of falls.

The Dark Hour Before Dawn for Gold?

gold price chart

Source: StockCharts

This February was particularly rough, with a 5% drop. But this sharp fall is part of the process. Every time my indicator has gone off, the first thing gold did was to have one quick, sharp shakeout; and then the rally started.

So the current pullback simply looks like the dark hour before dawn for gold.

The World’s Biggest Gold Buyer

It’s hard to see it falling much further. Because, when gold dipped last week, buying on the Shanghai gold exchange reached record levels. The other thing is that gold is trading at a $20, or 1.2% premium, in China to the US. China is the world’s biggest gold consumer, so what is happening in China is more important than just about anything else in the gold market.

So it’s good for gold investors to see that 2012 was China’s biggest ever year of gold imports. These jumped 94% on the previous year, to hit 834 tonnes in 2012.

This represents 18.5% of the annual global gold (mine and scrap) new supply; up from just 1.1% of the annual global gold market in 2009. China is putting vast and growing pressure on the physical supply.

This pressure on the physical supply of gold is showing up all over the place now. Apart from my top secret indicator, you can also see it in the futures market.

Gold futures have been trading slightly below the spot price of gold. This is called ‘backwardation’, which is another one of those long words finance types coin to sound clever.

All that matters is that this is another warning siren. It means that investors don’t reckon that counterparties will be able to deliver gold when they say they will. In other words, it’s another sign that physical supply has dried up.

The few times it has happened before, gold has seen major moves very soon after.

The fundamentals are pointing towards a move in gold. But the charts are also sending out some powerful signals too.

The ‘RSI’ is a measure of how oversold, or cheap, something is.

For gold, last week it got down to levels only seen three times in ten years.

Last time it happened was in May 2012, which marked the start of a 15% rally. You can see this in the chart below. The RSI is in the line at the top. I’ve circled that record low in red. Gold is the big chart below that, and I’ve highlighted the subsequent move in green.

Gold’s 15% Move in 2012 – History Repeating Now?

Gold's 15% Move in 2012

Source: StockCharts

It looks like history is now repeating. After gold’s RSI hit record lows last week, gold has followed the same script as it did last year: first a big bounce (4% in a week), and now a slight pullback.

I don’t think it will be long before we see it recover fully, and take off in earnest as the lack of physical supply kicks in.

Watch the US Fed

Besides, we only have to wait until tomorrow for US Federal Reserve Chairman Ben Bernanke to give a speech called ‘Low long-term interest rates’. He’s speaking at a conference called ‘The past and future of monetary policy’, which should be a riot.

But the important point is that he will use this as a platform to argue why the Fed will keep rates low for a long time. As a rule, gold rallies every time the ‘Bernank’ opens his mouth in public.

So this public outing of the bearded wise one could give gold fresh legs next week.

And don’t forget, when gold rallies – silver tends to rally even harder.

…But silver’s a story that will have to wait until Tuesday.

Dr Alex Cowie
Editor, Diggers & Drillers

Join me on Google Plus

From the Port Phillip Publishing Library

Special Report: The Gold Mirror of Kaieteur Falls

Daily Reckoning: In Bernanke We Trust

Money Morning: The Primary Colours of Investing

Pursuit of Happiness: Exclusive: Your Eight-Point Wealth Protection To-Do List

Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au

GET THIS NEW REPORT : 5 Things You Can Do To Boost Your Retirement Pot

In this report we’ll give you strategies, tips and advice to help you kick-start, or revive your retirement savings right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Diggers and Drillers

A 3-Point Plan to Re-Engage with the Aussie Mining Boom

This new video reveals a way for Aussie share investors like you to RE-ENGAGE with the next phase of the mining boom…while valuations are still dirt-cheap…

The plan centres round three specific stocks.

To find out what they are, click here.

Australian Small-Cap Investigator

The Australian wildcatter
exploring oil's 'final frontier'

The US Geological Survey says this area contains up to 71 billion barrels of oil.

Only a few explorers have secured licences to drill.

One of them is a daring little Aussie firm that begins drilling 'in early 2014'.

According to small-cap analysts Tim Dohrmann it's impossible to speculate just how high this one could go. Find out why here.

World War D

Couldn’t make it to our
‘War Summit’?

Don’t sweat it. Click here for the next best thing…

World War D was the most important meeting of minds of the decade so far. What came out of it will almost certainly force you to reshape your investment plan for the rest of the decade. There's no way to go back in time and get inside the Savoy Ballroom of the Grand Hyatt.

But you can do the next best thing…
to find out what it is, click here.

  • ^NDX3534.532+1.446 - +0.04%
  • ^FTSE6625.25+41.08 - +0.62%
  • ^AORD5444.800+32.200 - +0.59%
  • ^AXJO5454.200+33.900 - +0.63%
  • AUDUSD=X0.9327
  • USDJPY=X102.425

Graphic Ad 1 – Blue Chip Stocks Report

Revolutionary Tech Investor

This report is about TECH MOON-SHOTS

Four of them, to be precise.

It's an early-days project. But one biotech aiming for the cancer moon-shot is already up - get this - 497.14% since tipped.

For four more tech moon-shots, click here.

Gowdie Family Wealth

The worst mistake you can make when handing wealth on to your kids

This brand new investor briefing shows you what your family’s in for if you don’t take care to leave your wealth to them in exactly the right way.

And it shows you precisely how to prevent infighting, recklessness and misunderstanding over money.

Read it here.

The Money For Life Letter

Holden. Toyota. Qantas. BUST

Do you really expect the share market to boom in times like these? That's why Nick Hubble says the best thing you can do right now is invest for safety and income.

This brand new video shows you how you can get predictable, reliable and rock solid cash flow no matter what happens in the wider economy.

You could lock in up to $20,000 a year - and that's just the start. See how here.

Sound Money. Sound Investments. [bullish prediction]

Greg Canavan's first bullish prediction in four years

Greg Canavan
doesn't make forecasts like this often.

When he does, it's because he’s found something that could make you money for years to come.

Read more here.

Is the Australian Housing Boom Really Back?

The Denning Report

2014 Predicted

Dan Denning accurately forecast 2013's flight from
bonds to stocks, the commodities crash and the
Aussie dollar top…to the exact week

In this brand new forecast report, he shares his
three critical predictions for 2014…

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

Done properly, a retirement business can not only help fill a retiree’s time and replace their work [Read More...]

Free speech is no longer really a right at all. Governments, vested interests, and lobby groups are [Read More...]

Australian house prices are going to remain high. Perhaps finally, when the last baby boomer retires [Read More...]

Make sure that the changes you make to your financial plan are from a credible source. Otherwise the [Read More...]

It was day two of the World War D conference, and the final session was starting. We were closing th [Read More...]

The US dollar has value because the government levies $3 trillion in tax liabilities annually and ac [Read More...]

The best course of action is to focus on generating wealth and investments outside of the government [Read More...]

Since the US Federal Reserve’s relief efforts began, total world debt has gone up by $30 trillion, w [Read More...]

A one size fits all strategy or rollover to your own self managed super fund with the ability to tai [Read More...]

Services will boom according to the Reserve Bank of Australia. Sales assistants and tour guides are [Read More...]


"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery