From the Desk of Ian Culley @IanCulley

Precious metals bulls have plenty to be excited about.

Major headwinds have abated as rallies cool in real yields and the dollar.

Gold futures are trading above their former commodity supercycle peak.

And the yellow metal is printing new all-time highs priced in every significant currency except the US dollar.

Even mining stock stocks are breaking out!

Check out Alamos Gold $AGI ripping to a new five-month high:

From the Desk of Ian Culley @IanCulley

Investors love a good gold debate.

“Is it a commodity, or is it a currency?”

I’d argue it’s both.

But, today, I want to focus on gold as a currency in light of a series of new all-time highs versus fiat overseas.

Gold priced in euro terms closed last week at its highest level in history.

Gold and silver are pushing higher after posting potential failed breakdowns earlier this month.

If the October lows mark a critical inflection point – and it’s still a big “if” – the following three names will be ripping above our risk levels…

First up is a $5B gold mining company headquartered in Toronto, Canada.

This is Alamos Gold $AGI:

AGI provided profits in the spring, launching it to “fan-favorite” status.

Buyers drove home their precious metals stance for a second week.

Gold and silver posted wide-bodied bars, rocketing higher on the open and closing near the day’s peaks. 

Bullish momentum thrusts like these tend to spark sustained rallies.

That’s right!

It could be off to the races for these shiny rocks, especially given the crucial levels recovered last Friday…

Gold futures ripped higher, gaining more than 3% Friday while reclaiming a critical area of former support at approximately 1,910:

From the Desk of Ian Culley @IanCulley

One day of buying pressure doesn’t change the situation with precious metals. 

Gold bugs were out in full force Friday, driving gold and silver to impressive gains that would excite even the least devout among them.

But don’t get your hopes up… 

Precious metals stopped falling at a logical level of support.

Good, old-fashioned price memory triggered a standard response – nothing magical.

More importantly, nothing bullish.

Check out a custom index equally weighting gold, silver, and platinum:

From the Desk of Ian Culley @IanCulley

Precious metals no longer deserve the benefit of the doubt.

They no longer represent an opportunity cost, either.

No, gold and crew carry downside risk – nothing else!

What changed since last week? 

Gold futures undercut a critical level of interest…

That’s the former commodity supercycle peak marked by the 2011 high.

Check out the monthly candlestick chart of gold futures:

From the Desk of Ian Culley @IanCulley

The US Dollar Index $DXY has posted its tenth week consecutive in the green. 

And with the dollar off to a solid start Monday morning, an eleventh looks promising.

This is excellent news for dollar bulls.

But it’s a gloomy prospect for risk assets, especially precious metals…

Check out the performance chart anchored from DXY’s July 13 bottom:

From the Desk of Ian Culley @IanCulley

Precious metals represent an opportunity cost.

The entire complex – gold, silver, platinum, and palladium – has gone nowhere for the past few years.

Yet I can’t overlook the resilience of gold and silver as interest rates and the US dollar rise – two significant headwinds for these shiny rocks. 

Perhaps they deserve the benefit of the doubt.  

I believe they do.

But extending these lackluster metals with a favorable outlook does not equate to taking a long position.

It’s far from it.

Price must prove buying precious metals offers a rewarding proposition.

The following two intermarket ratios will undoubtedly rise if and when it does.

I covered these ratio charts in late July as they neared key inflection points or critical former support levels.

Fast-forward to today, and both are bouncing higher after posting fresh lows.

Check out the Gold Miners ETF $GDX versus the S&P 500 ETF $SPY:

From the Desk of Ian Culley @IanCulley

Precious metals deserve the benefit of the doubt.

These shiny rocks are in the early stages of their next secular bull run. But I won’t let my bullish bias detract from the obvious: Gold has seen brighter days.

Overhead supply dominates the charts while risk appetite cools and prices fall toward critical support levels.

Is it time to buy the dip? 

No, especially as investors focus on more attractive investments…

The strongest trending assets outperform their alternatives. (Buy the strongest, sell the weakest.)

And every asset group has its strong man leading the way. For precious metals, it’s silver.

Gold and the gang benefit when their “strongest performing asset” is their crazy cousin – silver.

Silver often spearheads a proper risk-on rally in precious metals as it surpasses gold.

But that’s not what’s happening right now:

From the Desk of Ian Culley @IanCulley

It was do or die for the yellow metal a couple of weeks ago.

Gold chose “do.”

Buyers sprang into action, defending a critical former support level while driving prices higher. 

That valiant effort may have only prolonged the inevitable: a period of sustained weakness.

Don’t get me wrong. I’m not playing the role of a Debbie Downer this week.

I still believe gold is in the early innings of a new secular bull run.

Why?

It’s pretty simple. All we have to do is switch the denominator to any other global currency.

Gold has already broken out versus every currency in the world – except the US dollar. 

And that, folks, is the crux of the problem.

The US dollar!

Yes, overhead supply remains intact for these shiny rocks and their associated stocks. 

Demand for gold must absorb supply before we witness new all-time highs, no question.

I just can’t envision that happening if the dollar continues to rise – which it is.

Check out the overlay chart of gold futures and the US Dollar Index $DXY inverted:

From the Desk of Ian Culley @IanCulley

I’ve had the pleasure of driving cross country multiple times, covering every inch of I-10. 

I made so many memorable moments on those drives …

I pushed through white-out conditions in Kansas. (My brother had an appointment with the State Department in Washington D.C., and we couldn’t stop.)

I “accidentally” crossed into Juarez, Mexico, which turned into one helluva time!

And I picked up more than one speeding ticket on the reservation (highway patrol doesn’t play in Navajo country).

I somehow made it coast to coast every time.

While many details of those treks slip away with the years, I’ll always remember the Alamo.

I know, it’s funny. I didn’t even go inside.

To be clear, my memory of the Alamo has nothing to do with the historic battle or the revisionist histories that have been written and rewritten since.

Instead, I picture a meager fort in the twilight – nothing more. A truly humble beacon of strength.

The understated image resurfaces in my mind’s eye this week as I plan and plot the best way to trade gold.

From the Desk of Ian Culley @IanCulley

Gold is hanging on for dear life.

Rising interest rates and a strengthening dollar create formidable headwinds for the shiny yellow rock.

I remain optimistic for the entire precious metals space, but hope is not a viable trading strategy – especially if gold undercuts its 2011 highs.

Some gold bugs may find it difficult to accept, but gold’s a short if and when it decisively closes below its prior commodity supercycle peak.

And it’s trading back at those former highs today…

Let’s review the levels.

Check out the monthly candlestick chart of gold futures: