I’ve seen a lot of commentary in which the author assumes that this year’s rally in the gold price is the first rally in a new cyclical bull market. It probably is, but at this stage — as the saying goes — the jury is still out. At this stage it’s best to reserve judgment, because blindly assuming something that might not be true can lead to large losses.

There are two main reasons that ‘the jury is still out’. First and foremost, at no time over the past 12 months have gold’s true fundamentals* been definitively bullish. Instead, they have oscillated around neutral. There have been periods, such as February-April of this year, during which the fundamentals had a bullish skew, but after tipping in the bullish direction for at most 3 months they have always tipped in the other direction for a while.

Considering what central banks have been doing to the official forms of money my statement that the fundamental backdrop is not definitively gold-bullish could seem strange. After all, the ECB is firmly committed to asset monetisation and negative interest rates based on the belief that these counter-productive policies are working, and the Federal Reserve is seemingly afraid to take even a small step towards “policy normalisation” despite its targets for employment and “inflation” having been reached more than three years ago. However, gold’s fundamentals are determined by confidence, not by sound principles of economics. To put it another way, whether the fundamental backdrop is bullish or bearish for gold is determined by the general perception of what’s happening on the economic and monetary fronts rather than what’s actually happening. Perception will eventually move into line with reality, but in the meantime years can go by.

Since early-July the true fundamentals have been neutral at best and over the past month they have, on balance, been slightly bearish. However, they are constantly in flux and it currently wouldn’t take much to shift them to bullish or make them definitively bearish. In particular, two of the most important fundamental drivers of the gold price are neutral and positioned in a way that they could soon shift decisively in one direction or the other. I’m referring to the real interest rate, as indicated on the first of the following charts by the reciprocal of the TIPS bond ETF (1/TIP), and the US yield curve, as indicated on the second of the following charts by the 10yr-2yr yield spread.

The real interest rate would turn decisively gold-bullish if 1/TIP were to break downward from its recent 4-month range and decisively gold-bearish if 1/TIP were to break upward from its recent 4-month range. The yield curve, which has been gold-bearish for the bulk of the past three years, would turn decisively gold-bullish if the 10yr-2yr yield spread were to break solidly above its September high. Note that it is very close to doing exactly that. As an aside, a break by the 10yr-2yr yield spread above its September high would also be a recession warning and a bearish omen for the stock market.

The price action is the other reason for the uncertainty as to whether this year’s rally marked the start of a cyclical bull market. I’m referring to the fact that of all the rallies in gold and the gold-mining indices from multi-year lows, this year’s rally is most similar to the bear-market rebound of 1982-1983.

The gold rally that began in December of 2015 will differentiate itself from the 1982-1983 bear-market rebound if the gold price closes above its July-2016 peak AND the HUI closes above its August-2016 peak.

Fortunately, you don’t need to be a fervent believer in the ‘new gold bull market’ story to make money from the rallies in gold and gold stocks. You will just tend to be more cautious than the bulls with blind faith.