…But that’s not as important as what it didn’t do today.

February 8, 2021

Dear Fellow Investor,

After getting shellacked for a $40 loss last Thursday, gold has put together a nice two-day winning streak that has essentially regained everything it had lost.

But this performance is not nearly as important as what gold didn’t do over the past two trading sessions.

And what it didn’t do was to extend the fall further to the downside.

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Building A New Foundation

Yes, it was discouraging enough when gold and silver negated the effects of the “silver squeeze” a week ago by giving up all of those gains and more the very next day. But when prices took a major tumble on Thursday, all hope was lost for the gold and silver bulls.

In retrospect, that was clearly a good thing, for it is of such emotional swings that bottoms are made. But, as always, it was hell to live through and watch as the bottom dropped out.

Was there too much bullish enthusiasm in the metals as the new year began and it became clear that an even more-accommodating spend-thrift administration had seized power in Washington?

It didn’t seem so at the time. In fact, it was disappointing that we hadn’t seen a more positive reaction in the metals. As I wrote in our February Gold Newsletter, gold and silver weren’t moving higher on positive news and seemed to be looking for reasons to fall.

This was bearish action.

Yet, behind the scenes, it seems that there were still too many bulls in the market. So it was necessary to wipe the slate clean…and Thursday went a long way toward accomplishing that.

Thus, we had a nice rebound on Friday. Gold gained about $20 after the January nonfarm payrolls number came in at 49,000 jobs created in January, which was not only a bad number but also a bad miss from the consensus expectation of 105,000. And it got worse: The two previous months were revised lower, taking another 159,000 jobs away.

Gold immediately jumped about $10 on that news and ended the day up about $20. Today it quickly gained another $20, and is up about $16 as I write. Silver offered great leverage to both Friday’s move in gold and today’s, and is now up a nice 2.5%, or about 70¢.

So back to my original premise…the important thing that gold and silver didn’t do was to continue falling after Thursday’s big loss.

Quite frankly, I would’ve been satisfied with the metals simply staying flat after that big sell-off. That they’ve instead pretty much wiped out the losses is a big bonus.

Because things felt hopeless on Thursday, and gold in particular had traded within a few dollars of its November 24th bottom. Breaking through that support at $1,776 could have sent the price much, much lower.

Instead, we seem to be re-building a new foundation…and a healthier one without too much bullish sentiment.

Let’s hope this one holds. And, as always, let’s keep the bigger picture — one in which much higher gold and silver prices seem destined over the next few years — firmly in mind. All the best

All the best,

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