Or maybe catching a bottom? After we recommended that readers start buying again, gold made a huge move yesterday.

Whether the correction is over or not, it’s still time to get positioned for the next big move higher.

March 10, 2021

Dear Fellow Investor,

Was that it? After being incessantly pounded by rising Treasury yields for weeks, gold caught a break yesterday.

The 10-year Treasury yield reversed from its peak at around 1.6%, sending gold, silver — and the U.S. equity and bond markets — rocketing higher.

Gold gained $33.50 and silver soared $0.83. The Nasdaq made a dizzying run, gaining 3.69% on the day.

The big question was whether this was a one-off rebound or the beginning of something much more substantial. Today brought evidence of the latter, as gold and silver are both up a bit more, despite a CPI report that could have been interpreted either bearishly or bullishly.

So, some hope…but no certainty yet that further lows are behind us.

The good news is that we seem to be at an inflection point where the Western traders have largely abandoned their gold bets while the Eastern investors/savers are buying hand over fist.

You see, international investors as a group seem to have a much higher opinion, and valuation, for gold and silver. And as long as the Western traders want to place a lower price on the metals, they’re willing to buy them on sale.

There are two big factors at work here: The tendencies of Asian investors and the structure of the Western futures markets.

A Tale Of Two Worlds

The world of gold is divided into East and West, and gold flows from one region to the other depending upon whatever price trend is in force.

Consider that when the first gold ETF was in the planning stages years ago, I predicted that it would have a monumental effect on the market. But I also cautioned that it remained to be seen how “sticky” these new paper gold investments would be.

As years of evidence can now attest, these gold buyers aren’t very sticky at all.

Sure, a good portion of these holdings are long-term buyers, but on the margins, these buyers follow the price trends. Or at least they do in the West.

A report just out from the World Gold Council notes that global gold ETF holdings fell by 84.7 tonnes or 2% of assets, in February as interest rates rose. This marked the third month out of four for gold outflows, and the seventh worst monthly loss ever.

That gold ETFs, which are dominated by Western investors, would decline in holdings as the price of gold dropped isn’t surprising.

But here’s the interesting nugget buried in the WGC’s report: Gold funds listed in Asia had very strong inflows. In total, they gained 10.6 tonnes in February, a very significant increase of 8.4% as the price plummeted.

Noted gold-market researcher Jan Nieuwenhuijs has done ground-breaking work on the propensity of Asian markets to buy when gold prices are low, and the corresponding propensity of Western markets to buy when gold prices are rising.

That phenomenon is on full display now. As we’ve reported over the years, this bargain buying by Asian investors doesn’t help a rising gold-price trend (in fact, it hampers it as these buyers typically withdraw from the market). But it does cushion the market on down-trends.

On the other hand, trend-following buying or selling by Western investors tends to exacerbate the trend in force. This can make for some heady price gains in an up-trend, and some stomach-churning drops when prices are trending lower.

That’s precisely what was happening over the past couple of months.

Simply put, the Western traders had been dumping gold as the price continued to nose-dive. The latest Commitments of Traders report (released last Friday with a data cut-off date of the previous Tuesday) showed that managed money (mostly hedge funds) cut their gold positions dramatically, to the lowest levels since May 2019.

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It’s worthy of note that gold rallied shortly after that previous low level…and seems to be doing the same thing now.

Assuming that hedge funds continued to sell gold in the days after that report’s cut-off date, and considering that gold’s relative strength index (RSI) had dipped to levels paralleling those before the last big rally, the indications that gold in fact bottomed this week are building.

As I’ve been stressing in these pages, it’s virtually impossible to pick the absolute bottom in any market, outside of fantastic luck.

The best we should hope to do is to accumulate on long-term lows…and have the discipline to lighten up at long-term highs.

With gold and silver having reached secular lows in price momentum and sentiment, and with the metals now showing some strength, it seems like this is the time to buy.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference