Is This The Final Parabolic Upswing? Comparison of Two Precious Metals Bull Markets

IMG Auteur
Published : September 10th, 2011
760 words - Reading time : 1 - 3 minutes
( 5 votes, 1.2/5 ) , 2 commentaries
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
2
comment
Our Newsletter...
FOLLOW : Precious Metals
Category : Market Analysis

 

 

 

 

In a nutshell, this week we decided to provide you with the analysis of the previous bull market in the precious metals. The goal is to see how the current bull market compares with the previous one. After all, since history rhymes, looking at the analogy should provide us with clues as to what can happen next. In particular, we will be able to estimate if we’re currently on a verge of the final parabolic upswing and if this bull market is likely to end soon.







The above chart presents the DJIA:Gold ratio in two time spans: 1950-85 (red line) and 1999-2011 (golden line). The 1999-2011 has been superimposed on the older data. The chart points to the fact that in the period between 1965 and 1975 the ratio had been falling roughly in the same way it did between 1999 and 2011. We live in a globalized world, so looking at gold’s price relative to stocks might be more appropriate for long-term tendencies than a look at the gold price itself, simply because the major shift in investor’s sentiment happens when investors prefer gold to the most popular investment class – stocks.



The methodology here is, therefore, to compare the decline in the DJIA:Gold ratio around the 70’s bull market and compare it to the decline seen in the more recent years. Things to look at include the size of the decline, the time it took before the decline ended and the overall shape of the downswing.



As far as the size of the decline is concerned – in both: time and range – the slide seems far from being over – which means that the bull market in the precious metals is likely to continue. The analysis of shape confirms that both bull markets are indeed similar. However, the most interesting implication is based on the late 1974 rally in the ratio.



As we see that 1974 and 1975 marked a significant trend reversal, we might expect a similar move to happen in the near future. This would imply a significant correction in the precious metals sector and possible rallies in the general stock market before the precious metals sector regains its strength and continues moving up.



Clearly, this is not the time to stop paying attention to warning signs about a possible decline in the precious metals. Let’s take a look at the gold chart.







In the chart above, you see the price path of gold in the years 1999-2011 (golden line) superimposed over gold’s price path between 1950 and 1985 (red line). The vertical axis represents the older data while the values of the recent data have been rescaled to properly reflect the corresponding price changes. After a short comparison you might notice that today gold seems to be in a similar situation to where it was in 1975. This would suggest that we are in for a significant correction in the precious metals sector before the bull market resumes. It would also imply that any correction seen in the following month would not end the current bull.







The above chart is similar to the previous one, except for the fact that it presents silver, not gold. Once again, the current bull (green line) has been superimposed over the price path between 1950 and 1985. Even though the price paths here are less similar than in previous cases, they still point to the fact that the silver rally might be followed by a substantial short-term correction or at least by a sideway trend. Just as in the previous cases, this should not be perceived as the end of the current bull.



Summing up, there will be a time gold and silver move straight up without any corrections, but analysis of the previous bull market suggests that this moment is still years from today. Moreover, this is not the time to stop paying attention to signals indicating a significant correction around the corner. Finally, this is not the time to stop trading the precious metals market (in general).



To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.



Thank you for reading. Have a great and profitable week!


Przemyslaw Radomski

 

 

 

<< Previous article
Rate : Average note :1.2 (5 votes)
>> Next article
Przemyslaw Radomski is the founder, owner and the main editor of www.SunshineProfits.com. Being passionately curious about the market’s behavior he uses his statistical and financial background to question the common views and profit on the misconceptions. “Don’t fight the emotionality on the market – take advantage of it!” is one of his favorite mottos. His time is divided mainly to analyzing various markets with emphasis on the precious metals, managing his own portfolio, writing commentaries, essays and developing financial software. Most of the time he’s got left is spent on reading everything he can about the markets, psychology, philosophy and statistics. Mr. Radomski has started investigating the markets for his private use well before starting his professional career. He used to work as an informatics consultant, but this time-consuming profession left him little time for his true passion – the interdisciplinary market analysis. Establishing www.SunshineProfits.com gave him the opportunity to put his thoughts, ideas, and experience into form available to other investors.
WebsiteSubscribe to his services
Comments closed
  All Favorites Best Rated  
I think you can`t use these old cart`s anymore. In these days manipulation of the gold and silver is not possible like in the 80th.
Also you can buy gold all over the world now , what also is a difference of the 80th. I think as long the money i printed like they do now gold and silver stay a save heaven. Sure we will see some good correction now and than but be happy there are.
author is a douche-bag. Trite analysis focusing on a single ratio of the market - ignores hundreds of other factors- rampant printing, corruption, declines in mining, declines in silver stock, serious fear, power shift to East, Euro/US/World debt crisis. Bad stuff, be skeptical.
Latest comment posted for this article
I think you can`t use these old cart`s anymore. In these days manipulation of the gold and silver is not possible like in the 80th. Also you can buy gold all over the world now , what also is a difference of the 80th. I think as long the money i printed  Read more
hollander - 9/12/2011 at 12:05 AM GMT
Top articles
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS