Going Back Into the Gold Trade

Let me tell you what is happening with the price of gold.

The barbarous relic snapped out of a five-year bear market in January, delivering a very smart 31.68% rally during the first half of 2016.

The big driver was the sudden collapse of European and Japanese interest rates to hugely negative levels, some to -0.40%.

That gave gold (GLD) a real positive return, some 40 basis points, compared to European and Japanese cash returns.

By July, gold reached a multiyear high at $1,350, and speculative longs in the futures market rocketed to all time highs.

There it levitated for three months, and the price for the yellow metal moved sideways.

Then, the Bank of Japan peed on the parade, allowing overnight rates to float back up to 0.10% by failing to expand quantitative easing, its hyper aggressive monetary program.

The European Central Bank followed suit. A flash fire ensued in the movie theater, French-frying many trading longs in gold and triggering massive stop loss orders to sell.

That took us down a gut churning 11.6% in short order. Speculative longs are now a shadow of their former selves.

Therefore, it is safe to stick your toe back in the water on the gold trade.

I believe we are only in the first year of a new 20-year bull market in gold.

China has to buy a 10,000 metric tonnes of the sparkly stuff worth $471 billion over the next 40 years to reach the same levels as Western central banks.

That works out to 250 tonnes a year. Recently, it has only been buying 250 tonnes a year on the open market. In other words, it is falling behind.

To read more luscious detail about the long-term fundamentals for gold ownership, click?Why China is Gold?s Best Friend .

It's rare to see a trade setting up on the two-year charts, but that?s what is happening today with gold.