Trader’s Corner — Gold about to Spike

In today’s Money Weekend…a stake in the ground…the opportunity…gold price ready to rumble…bond yields tumble…and much more…

I think it’s time to put a stake in the ground and put forward a view that can be proven wrong.

None of us know what the future holds. The markets are great at teaching you that lesson over and over.

If you get cocky and start kidding yourself that your great results prove what a genius you are, it won’t be long ‘til you are knocked on your arse.

Writing articles every week about the markets sets you up for failure because you are never going to get everything right.

When you listen to market commentators, ask yourself whether they have made a clear statement about what the future holds, or whether it is a bunch of waffle that can’t be proven wrong.

I’ve noticed that many experts who are asked to make comments on the news about the markets often say a lot of words, but they make sure they keep things as general as possible.

They don’t give a time limit on when they are proven right or wrong. They don’t make a statement about when they are proven wrong by price action.

They give themselves plenty of loopholes in what they’ve said so it would be hard to come back to them in future to say they were full of it.

It’s probably a smart way to go about things when you know how volatile markets are and how quickly your views can be proven wrong.

No point sticking your neck out to get it chopped off. Far easier to sound smart and waffle on saying a lot of big words while looking impressive in your suit.

But our goal here at Money Morning is to stick our neck out with the chance of getting it chopped off, so you get some value from giving us your time.

The opportunity

I reckon we are about to see the gold price spike a hundred dollars in the next month or so. Beaten-up gold stocks will come back to life at a rate of knots and if you aren’t picking up a few while they look terrible, you will kick yourself when they have spiked 20%.

I will definitely be proven wrong if the gold price falls below major support at US$1,680, but I’m going to tighten things up further and say I’m wrong if gold falls below US$1,720 (currently US$1,794).

My confidence in the call will increase with the price above US$1,835, so I am a little early. But I reckon prices could spike quickly above there, so I’m rolling the dice now.

There you go. A clear statement that has the chance of making me look like a goose quite quickly.

How to Limit Your Risks While Trading Volatile Stocks. Learn more.

Gold price ready to rumble

Fat Tail Investment Research


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We have more clarity about the path of the Fed’s taper now and we are getting more concrete signs that the market thinks the Fed can’t raise rates very far before the economy weakens.

The yield curve is flattening not only in the US but worldwide.

Bond yields tumble

German 10-year bond yields were flirting with the zero bound recently, but they have since plunged well back into negative territory. Falling from -6bps to -22bps in the last few weeks.

Italian and Spanish yields have followed a similar path. Italian 10-year bond yields have plunged from 1.29% to 0.94% in the last three weeks. Spanish 10-year bond yields have dropped from 0.68% to 0.47% in that time.

Aussie bonds are joining in the rally with the 10-year bond yield falling from 2.12% to 1.77%, despite the fact all hell has broken loose at the short end after the RBA blinked, realising they couldn’t hold the three-year bonds at 0.1%.

The commentary out of the central banks has been predictably dovish despite the fact they know they have to start taking away the punchbowl to chase down inflation.

I don’t have a strong view about the path of inflation going forward other than to say I reckon it will be more persistent than they’d like.

If the economy can’t handle rates much higher than they are now due to the level of debt and inflation continues to overshoot, negative rates will be with us for a long time.

Gold should do well in that scenario.

We have seen a 15-month correction in the gold price and gold stocks have been beaten up badly. But the fact is the gold price only fell 19% during that correction.

I am well aware the correction may not be over. That’s why I will be so quick to run away from my bullish thesis. If the price falls below US$1,680, I am happy to say that there is more downside to come in gold and will move back to the sidelines.

But when you look at the situation from a trader’s perspective, the downside is quite limited before I know I’m wrong, and the potential upside is huge if the gold price breaks out to new all-time highs on the back of accelerating inflation.

That’s a bet I’m willing to take.

If you want to find out about a few of the gold stocks that I reckon will take off if I’m right, check out my Closing Bell video below.


Murray Dawes Signature

Murray Dawes,
For Money Weekend

PS: Watch the latest episode of my series ‘The Closing Bell’ on YouTube. Click here or the thumbnail below to view it.

Fat Tail Investment Research

Murray Dawes is the Editor of Pivot Trader and contributing Editor at Money Morning. He was one of five, from 5,000 applicants, chosen for a graduate position with the Swiss Banking Corporation — now part of banking giant UBS. The bosses quickly cottoned on to his potential and pushed him up the ranks as a futures broker on the floors of the Sydney Futures Exchange. Murray later broke out on his own and developed custom trading systems to trade leveraged financial instruments like futures. Due to his success, Murray became the ‘hired gun’ trader for Australia’s rich and famous. Today, Murray runs a trading service through Fat Tail Investment Research to help everyday Aussie investors use his advanced trading methods.

Money Morning Australia