Congratulations if you passed the test...

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Washout

The last week saw a washout of weak-handed longs in gold and silver. Now we’re about to see a washout of the shorts.

It’s been a conviction-testing week for gold bugs.

Congratulations if you passed the test.

Because, unless you believe that a $39 trillion federal debt with debt-service costs higher than national defense expenditures isn’t a problem...
 

...Unless you believe that Washington will slash spending by trillions a year, raise taxes to economy-crippling levels or suddenly experience never-before-seen levels of economic growth...
 

...Then you know that gold is going much higher over the long term.

Of course, it’s the short term that can be quite bothersome.

As you can see, gold over the last week has been sold off with wild abandon, especially once it broke support at $5,000.
 

First, we saw gold and silver fall along with all other assets as the oil price spiked to $110/barrel and even higher. But the metals and miners were hurt worse than any other market.
 

After a particularly big sell off on Thursday, some of my fellow analysts called a bottom. I was a bit more cautious, noting to my Gold Newsletter Alert readers that “We may go lower, but this feels like an exhaustion of the sellers has occurred or is near.”
 

Well, we had another big drop on Friday, and then a panicked bout of selling in overseas markets last night, until...
 

...Early this morning President Trump announced a five-day moratorium on strikes against Iranian energy infrastructure due to “very good and productive conversations regarding a complete and total resolution of our hostilities....”

In response, oil prices and the Dollar Index dove, while stocks, bonds, silver and mining stocks leaped higher.
 

Everything except gold.

Granted, the chart above shows a major bounce for the yellow metal from the overnight lows. And in fact, spot gold peaked into the green by a few dollars at one point earlier in today’s session.
 

But gold has seriously underperformed other assets in today’s relief rally. And in fact, it remains much further underwater in the active futures contract. And in my view, there are two reasons:

First, it’s obvious that all of the recent weakness in the metals was a wrong-headed reaction to the Iran conflict and soaring energy costs. The expected spike in inflation, rather than build bullish sentiment for gold, did the opposite thanks to traders’ obsession over the impact on Fed policy.
 

Again, this is what we get once the West gets into the gold trade.
 

Second, the fact that gold alone is still underwater in today’s markets-wide rebound, especially in the futures, tells us that underwater shorts are desperate to keep the price corralled until contracts expire at the end of the month.

As I write, there’s a tug of war in progress between the committed gold longs and the shorts. It seems doubtful to me that the shorts can maintain this pressure through month end, and it’s only a matter of time before we get a commensurate rebound in gold.
 

The mining stocks and silver, which are both jumping higher today, are telling us this as well.
 

So again, congratulations if you passed the test of this correction. You’re in good shape going forward if you resisted the temptation to sell.

All the best,

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

P.S. Right after we hit “send” on this issue, I’m getting back to work writing our April edition of Gold Newsletter. As I told you last week, I’m releasing four exciting new junior mining picks that I was excited about before this big correction took the market lower.
 

At current levels, each of these companies offers multi-bagger potential over the weeks just ahead. I strongly recommend that you click on the link below to make sure you don’t miss these opportunities.

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