Last week we focused on the gold stocks. There was more initial evidence of
a new bull market there than in Gold. However, Thursday Gold erased some doubts
as it rocketed above $1200/oz and to as high as $1264/oz before settling a
bit lower. That move puts Gold's recovery on par with those following past
major lows and offers greater confirmation that a new bull market is underway.
The chart below plots the recoveries from 1976 and 2008 and puts them on the
same scale as the current rebound. Note how those recoveries surged well above
$1200/oz within three months. Moreover, note how $1200/oz served as a pivot
point for those two recoveries within two months before pushing much higher.
Gold does not have to zoom to $1400/oz in the next few months to validate the
new bull market. It's more important that it holds above $1200/oz in the weeks
ahead.
In addition to $1200/oz, $1180/oz is also a very important level. It has marked
resistance and support numerous times in recent years as well as during 2009
to 2010. A monthly close above $1180/oz, which also surrounds the 20-month
moving average is another sign that the bear market in Gold is over. February
is only half over but Gold appears poised to close above $1180/oz.
Meanwhile, Gold continues to show impressive relative strength against foreign
currencies and equities in particular. Gold against foreign currencies is at
a 10-month high and could soon test a 3-year high. (We should also note Gold
relative to emerging market currencies is at a 34 month). Gold against the
NYSE hit more than a 2-year high this week. Note how these ratios have surged
well above their 400-day moving averages which will now be support. This relative
strength reflects that this move in Gold extends far beyond US$ weakness.
Unless Gold somehow loses its gains and closes February below $1180/oz then
there is no reason to doubt a major trend change and new bull market. Gold
is very strong in real terms and has been for weeks. Gold's recovery is now
on par with past recoveries and the metal has taken out key resistance at $1180/oz.
Last week we concluded: While we have some concerns on the metals we should
note that the miners lead at major turning points. The miners are telling us
something has changed. There will be pullbacks and periods of consolidation
but the forever bear market is over.
