After a couple of rallies were killed off by positive vaccine news, gold is biding its time for the next breakout.

If past form holds true, the next move higher should begin no later than late December.

November 18, 2020

Dear Fellow Investor,

I’ve been focusing on the big picture for gold lately, but today I’m going to ignore my own advice and look at the near-term view.

There’s a good reason for this: The fact that gold often bottoms in mid- to late-December, before beginning a rally that gains steam in January.

I famously called for the end of the gold bear market in mid-December of 2015, just as the Fed was about to institute its first post-2008 rate hike.

I predicted anticipation that the Fed was going to begin trying to normalize rates had been keeping gold down since the peak in mid-2011, and that the paper-gold traders — following the typical “buy the rumor, sell the news” pattern — would close out their gold shorts when the Fed announced its rate hike.

And so it happened, as that initial quarter-point rate hike marked the bottom of gold’s bear market.

The subsequent recovery was a stop-start affair, with a rollicking 2016, a not-so-bad 2017, and a bit of a moribund 2018.

But throughout that recovery, one pattern held true: The gold price began to rise in December.

Now, these rallies started to get noticed in January, whereupon investors rushed onboard the trend. But gold would initially gain anywhere from a few percentage points to 10% or so in December...and those who jumped on that move early, especially in junior miners, could reap exceptional gains before anyone else woke up to what was going on.

This pattern holds no implications for how long the rally will last. Sometimes the move higher barely lasts into February. Sometimes, as in 2016, it lasts well into the summer and spins off tremendous profits.

Then you have a real anomaly, like 2020, that breaks all the records in terms of gains and volatility.

Right now, we’re in a period for gold where volatility has actually collapsed.

As you can see from this chart, since the big drop in late September, the gold price has traded in a remarkably tight range. An attempt to break out to the upside a few weeks ago was halted by positive news on a Covid-19 vaccine.

With that development behind us, we see that this narrowing flag pattern, depending on how one draws it, still seems to have a little while to go before reaching a point of resolution.

From the standpoint of timing, this seems to jibe with my view, and the historic pattern, of a bottom in December.

Of course, this short-term view should not distract you from the larger trend, and the macro factors that seemingly assure much higher gold prices over the coming years.

I’ve covered those in great detail in recent issues, so I won’t repeat them now.

Suffice to say that along the long-term uptrend, we’ll have to navigate countless peaks and valleys. Many of these will test our resolve, while others will present opportunities to turbo-charge our long-term profits.

And the message today is that one of those opportunities seems to lie just ahead.

All the best,

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