The markets have become demanding (or
should we say, desperate). In spite of the stimulus by four central banks,
and the Eurozone bailing out their banks, the markets want more.
More interesting, the gold price has
held above its December lows. It’s holding firm, in spite of it all and
especially considering the Summer months are seasonally slow months for gold.
It’s also not breaking down while
the dollar strengthens. This in itself is a bullish sign. It seems to be
telling us that more stimulus is coming.
SUMMER: Likely bottom
The June months tend to historically see
the most lows for gold. The next popular low month is August. So again,
we’ll be watching the $1536 lows carefully during these lazy days of
On the upside, if gold breaks above
$1650 and stays there, the worst will be behind us. Then $1700, $1800 and
$1900 will be the next stepping stones in the renewed rise. Record high
territory would confirm the making of a strong leg upward.
How high is anyone’s guess. It all depends on the explosive stage in the bull
market. That phase is still to come and Chart 1 provides a good
example of this.
As you can see, gold has been moving
within a mega upchannel since 1970. The gold rise
since 2001 still has a ways to go before reaching the top side of this mega
Note on the top chart that gold moved
into the upper side of the mega channel when it burst into record territory
in September 2009. This was just six months after QE first started in March
When gold reached the $1900 record level
last September, the leading indicator (below) rose to the normal high area
and it’s been declining since then, now approaching the uptrend and
This is the meat of the matter…
the bottom line. The indicator is telling us that even though gold has risen
in a clear consistent bull market for 11 years now, it has yet to reach
bubble explosive levels.
Those moves would be more like what we
saw in the 1970s. In those days, the full bull market rose 2300%. The current
bull market since 2001 has only gained 660%... a far cry from the 1970s
Chart 2 shows this
comparison well. You can see that today’s bull market hasn’t yet
begun to move in bubble explosive conditions.
It’s getting closer though and the
timing suggests we could see the start of the bubble phase by next year.
There really is no fever like gold
fever, and the fever hasn’t started yet. For example, for this bull
market to gain 2300%, we’d see a $6000 gold price, which would blow the
gold price well above the mega upchannel.
Today, however, the mood is down. Many are
discouraged by the decline of the last almost 11 months. It’s really
not because of the 19+% decline, it’s the length of time that’s
taken the enthusiasm out of the bull market.
But don’t be discouraged. If this
sluggishness lasts another month or even two, it’s
fine and new positions should be bought on weakness.
Buy on weakness and hold... a good