For a chart analyst, the price of Gold has been looking like a “buy” for months now. On 29 December a number of our CTA strategies generated BUY signals on COMEX Gold and on the occasion, I published an analysis titled, “TrendCompass: a strong BUY signal on Gold!” The case was simple, really: for some ten months, Gold price corrections were bouncing back off of higher and higher support levels, broke the downward-sloping consolidation line and continued building upward momentum:

Five weeks later, the picture hasn’t changed much: Gold remains resilient around the $1,800 level, but it never decisively broke beyond it, let alone setting new highs above the August 2020 peak. This feels particularly disappointing because in the recent years we’ve seen one market after another trace a hockey-stick chart: Nasdaq, S&P 500, Cobalt, Rough Rice, Natural Gas, Electricity, Lumber, Bitcoin and many other cryptos to name just a few.

Somehow Gold and Silver have remained stuck in a range, even delivering negative performance during 2021. Many market participants believe that this is due to price manipulation and the argument has considerable merit. But in part, the reasons are also cultural. For more than two decades now, the media and the “expert class,” have consistently dismissed the precious metals as useless assets that generate no returns and “barbarous relics” of the past. It would seem that their campaign has been largely successful.

No takers for Gold

A few days ago I came across a short video put together by a popular podcaster and author Mark Dice titled, “Trying to Trade 1 oz Gold Coin (worth $1800) for Worthless Random Stuff.” Dice’s videos tend to be humorous and impudent commentaries on US political and social trends, but this one is also a testimony to the public perception about the desirability of Gold. Shot in the California coastal town of Encinitas (just north of San Diego), the video features Mark Dice interviewing 24 different individuals, offering to exchange a 1-Oz. Canadian Maple Leaf gold coin for their T-Shirts, water bottles, hats, etc. The interviews are done right in front of a bullion dealer where they could check the authenticity and value of the Gold coin, which Dice points out. However, none of the interviewees were interested in this offer.

Granted, Dice might have edited out individuals who agreed to the exchange, but still: he should not have been able to find 24 individuals who would decline a $1,800 coin in exchange for items of negligible value.

Clearly, public perception of the value and desirability of owning Gold partly explains its tepid performance over the recent years during which we’ve seen one hockey-stick chart after another in multiple markets.

What if social contagion engulfs Gold?

You know you’re in a bubble when the shoe-shine boys begin to talk about trading stocks. The adage from the 1920s stock bubble speaks to the social contagion that tends to drive many of those hockey-stick bubbles. During the 1990s dotcom bubble, everyone was talking about the new technology stocks. More recently, a similar cultural contagion set cryptocurrency prices on fire. Dice’s Encinitas poll makes it clear that no such contagion has hit precious metals – yet.

For this very same reason however, Gold and Silver might yet shape up the hockey-sticks of tomorrow. Cultural contagion is an unpredictable phenomenon and it could affect Gold and Silver in the future. In that case, all the expert analyses predicting Gold could reach $2,200/Tr.Oz. or $3,000/Tr. Oz. and similar such predictions could end up eclipsed, perhaps multifold. The trick – as always – is to have the correct exposure to precious metals before the large-scale price event (LSPEs) becomes the talk of shoe-shine boys.

We may not know the onset of such events, but one thing we know for sure is that they tend to unfold over sustained time periods as trends. Indeed, trends are far and away the most powerful drivers of investment performance. For Gold and Silver, there could be very substantial value to capture in the near future. Recall, during the inflationary 1970s, the price of Gold appreciated 24-fold! The most reliable way to capture value from such events is by adhering to well-formulated systematic trend following strategies.

This is what I-System TrendCompass reports are all about. They deliver reliable, versatile and effective daily decision support since 2003. For a one-month free trial, please e-mail your request to TrendCompass@ISystem-TF.com.

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