August 17, 2013 | By Tekoa Da Silva
I had the chance to reconnect with technical gold trader Gary Savage, publisher of the Smart Money Tracker daily gold market commentary and trading service, which has outperformed most of the world’s hedge funds in 2011 and 2012.
It was a powerful conversation as Gary indicated that precious metals and mining shares have finally confirmed a “1-2-3 reversal” pattern, suggesting a violent regression to the mean is now underway in gold—to be further angered as capital flees a collapsing bond market.
Speaking to the occurrence and meaning of a confirmed “1-2-3 reversal“ in the metals and miners, Gary indicated that, “A 1-2-3 reversal (some people call it an A-B-C reversal) is just a change from a pattern of lower lows and lower highs, to a pattern of higher highs and higher lows…silver, platinum, palladium and the miners have all completed that 1-2-3 reversal within the last week. We were just waiting on gold to do the same thing and confirm that the cyclical driver of the sector was also in line with the rest of the metals—and gold did that yesterday.”
As a consequence of that confirmation according to Gary, “Big money is now trying to get in on the long side and I think this move up out of this bear market bottom probably isn’t going to behave like a normal rally…it’s going to have a violent regression to the mean…my theory was that we were going to see a pretty strong V-shaped rally out of this bottom…that appears to be what’s going on…we could see gold retesting those September 2011 highs in the next three or four months depending on how hard the dollar falls.”
What will further anger this violent regression to the mean according to Gary, will be the bond market, in that, “We’ve got a big problem in the bond market. The bond market is starting to come unraveled…and the Fed in my opinion is going to have to increase QE to try and reclaim control. [So] the big trending moves from here until late 2014 or late 2015 are no longer going to be in stocks, bonds or real estate…it’s going to be in the commodity markets. Specifically…in the precious metals markets. It’s where the really big gains are going to be.”
Capturing this historic move in metals and miners will be challenging Gary noted, for the reason that, “When you have a bear market like we did, people are very nervous and as we come up off that bottom, they’re afraid to [buy]…and so they wait until we start going up again, exactly like what has happened this time—we go up very aggressively, get overbought very quickly—and then they ‘can’t’ buy because it’s overbought…[then] as soon as the dip comes, it looks like the bear market is [returning]. So they ‘can’t’ buy again, and they continually miss this move.”
“So [that's how] the bull continues to knock people off even as it goes up“, Gary added, “and that’s what produces these very aggressive moves.”
As a final comment towards strategy over the next few months, Gary suggested that, “We need to get in, not worry about daily wiggles and just sit tight until later this fall.”
This was another powerful interview with one of the top traders in the gold market, and is required listening for investors looking to profitably trade this gold bull market.
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Tekoa Da Silva,
Bull Market Thinking