A year after Hedgeye CEO Keith McCullough said he started bailing on gold he's not quite ready to to start stocking bricks just yet, but he's willing to concede that he's "starting to stop being bearish on gold." Baby steps.
The bullish case on bullion is well known. In the attached clip, McCullough lays out the three commonly accepted catalysts. First, Bernanke has to keep printing money without President Obama stepping in to do anything to stop him. That seems a safe bet, particularly with the likely confirmation of Janet Yellen as Bernanke's replacement. If it happens at all, a taper of quantitative easing is way, way in the future.
The most important factor in a gold rally is the bulls coming back into play. On the margin it's incremental buyers who set the price. Gold prices are all about the charts. Like many others, McCullough was looking at $1,270 as support. Now that the level has held (albeit barely), bulls are creeping back into play.
From here he wants to see gold break out and hold above $1,352, which it seems to be doing as of Monday morning. Here's where McCullough introduces two more factors: first, the dollar has to continue to be under pressure (as mentioned last week gold is testing multi-month lows), and yields on the 10-year treasury note have to stay under 2.60% (^TNX).
That gives you two levels to watch to stay bullish on gold as far as McCullough is concerned. First, the 10-year note needs to stay below 2.6%, and second gold has to rise sustainably above $1,350.
If markets hold those levels, there's a decent case to be made for finally stepping back into gold. As we say so often, you can try anything you want as long as you have an exit plan. If gold investors have learned anything over the last year it's to stay analytical when it comes to investing; having a heart of gold just gets you in trouble when it comes to money.
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