This is not a time to long call options in precious metals. The right play is to be out or to be long ETF’s where one can withstand this prolonged bottoming process. The gold collapse has resulted in the yellow metal dropping to $1,207 an ounce. It has broken the July lows and the main reason is the strength of the greenback. We are now well into August and the complex is well overdue an intermediate cycle low. Sentiment is well in the buy zone and the long term technicals remain heavily oversold. We cant have long to go now.
The S&P500 gapped down today before making it to $2,837 by the close. Our opinion on equities remain clear. We believe they are going higher. Yes we still expect some sort of intermediate decline in the near term. We are definitely due one. However any meaningful correction will be once again bought. We monitor the fundamentals, technicals, COT reports and investor sentiment and nothing is telling us that a bear market is close. In fact, we could have multiple years here of a bull market before we see a cyclical bull market top.
A Drop In Equities May Alleviate The Gold Collapse
My guess would be sooner or later when equities drop, we will see some buying in the precious metals complex. We still maintain the metals complex is where one should be putting more of their capital. The US dollar has had some run and is due a drop down into an intermediate or daily low. A weaker dollar will give gold the opportunity to rally. Remember, the FED will not be able to keep raising rates indefinitely if we were to get a steep move down in stocks. That would take the Fed’s interest rate policy firmly off the table which would alleviate the gold collapse one would think. This then would probably weaken the greenback and strengthen the euro. This too shall pass. The first part of August will tell us a lot.
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