Opportunity to Long gold

Opportunity to Long gold

           In 2014, US dollar returns as a King among currencies. It become a the most crowded trade. However, it is two sides of the same coin. Commodity face a relentless bear market and crude oil accelerate to plunge in recent month. Over stretched rise of US dollar lead to oversold in commodity. I expect US dollar will take breather in its secular bull market(my view is that US dollar will rally in future 3 years at least and write a article to explain my point.). It is time to prepare to catch the opportunity to rebound of commodity. I choose gold as my proxy of this view.

Figure 1: US dollar rally is getting stretched when looking at the 6 month ROC in its history. US dollar performance is disappointed in the following 1 year.

Source: J.Lyons Fund Management, Inc

Figure 2: The US dollar hedgers accumulate a considerate amount of short position that is time to trigger a price reversal.

Source: SentimentTrader

Figure 3: The latest ECRI weekly Leading Index which plunge to be negative predict strong expansion of US economy at 2H 14 is time to decelerate.

Source: Advisory Perspective

Figure 4: According to SentimentTrader, the opinion towards US dollar had reached extremely optimistic level. At the same time, US dollar rise to a 11 year resistence.

Source: KimbleChartingSolution

Figure 5: Gold had declined by over 35% in Nov 14 which is higher than the slump in the all bear market in average historically.

Figure 6: The option towards Gold had reached an extremely pessimistic level.

Source: SentimentTrader

Figure 7: The Gold vs Gold miner Ratio had reached the level that had not seen since 2000 when is the start of secular bull market for gold.

Source: Short side of long

Figure 8: Two Gold Miner ETFs had breakthrough the triangle to rally. It is a bullish sign for gold.

Source: KimbleChartingSolutions.com

Figure 9: Gold react to be relative strong to other commodities even though US dollar makes a parabolic rally recently. (The latest NFP released today and beat above expectation but US dollar response weakly and gold perform well).

Source: Short side of Long

Figure 10: Gold had breakthrough the declining triangle.

Source: Short Side of Long

               All in all, it is time to build up a long position on gold. Especially, its price pattern is favorable to rally. I will accumulate position if the price keeps to rally in the next few days. At the same time, stop loss is used to control the risk. This is typical trading style of trend follower.