As the gold price takes another leg lower it’s ‘bigger picture’ time once again
Gold took another leg lower this afternoon – along with equities. The FTSE is down nearly 3% and the S&P down over 1%. Just another 19% to go then until we get QE3.
But before gold investors open that window on the top floor with a mind to jump it’s once again time to step back and take a look at the bigger picture once again.
This bull market in gold is credited with starting in September 1999 when gold bottomed at the lowly price of $251.
For the next 3 years it rose steadily, nothing dramatic, and peaked in February 2003 around $370 before having its first major sell off.
The gold price then came back and made a new high for the bull run in January 2004 of $430 before once again selling off.
It took a further 2 years until January 2006 before this uptrend was broken with conviction.
This is really just Phase 1. of gold’s bull run and we can see on the below chart the rising overhead resistance in this first phase:
- The previous high in 2003 is taken out and a new high of $430 is achieved
- It takes until the start of 2006 for gold to break above this phase 1. resistance line
- What was resistance became support and after getting back to that red line in the summer of 2006 it bounced and never really troubled it again. This was the beginning of phase 2.
Phase 2. is where the gold bull market really caught a bid and got going. In May 2006 gold climbed all the way to $730 to make fresh highs for the bull move before having any significant sell off.
Then in March 2008 gold made all time nominal record highs breaking through $1000 for the first time and reaching $1030. Then came a 40% sell-off taking gold all the way to $700 and just below its previous high in May 2006.
The resistance line for Phase 2. was now established (from the May 06 high to the March 08 high). As you can see from the below chat of Phase 2. it then took until November 2010 until this resistance line was once again challenged:
- New high for the move was made
- November 2010 gold fails at its first attempt to break this uptrend resistance line
- In April 2011 gold breaks through the Phase 2. resistance line
- Then just like in c) of Phase 1. the resistance becomes support – after coming back and testing that red line of Phase 2. gold shot up to make its current all time high of $1920
- Then we had Christmas 2011 sell-off. But look where the sell-off to gold too. Right back to the now support line of Phase 2.
- After rallying off the now support line at e) gold once again sold off. But look where gold has sold off to today, right back to the now support line of phase 2. – As long as that level holds gold can still be considered in the same move that transitioned to using Phase 2. as support and the move that bought us the explosive $1920 high of last year
It will be very interesting to see if this now support level from Phase 2. holds. But if gold does break below that red line from Phase 2. what can we expect?
This is where Phase 3. comes into to play – a phase that has an uptrend at a more sedate pace than the one from Phase 2.
Phase 3. starts from the peak in 2008 $1030 and runs to the next peak in November 2009 at $1225 before any significant selling came into the gold market.
- November 2009 new high is made at $1225
- After selling off after the November 2009 high gold makes another move higher, this time to $1265 – but notice that it doesn’t breakthrough the resistance line of Phase 3.
- Gold breaks through the Phase 3. resistance line in September 2010
- Once again resistance become support – just like in Phase 1. c) and Phase 2. d) – Gold uses the old Phase 3. resistance as support and bounces off this line to break above the Phase 2. resistance and goes on to make new all time highs
So why is the Phase 3. line important? If we put it on a chart with the Phase 2. line it becomes clear:
We can see that with gold at these levels today ($1618) it is still holding above the Phase 2. support line. But should we break that line there is a good chance that gold falls back to it’s older (slower) Phase 3. support level right around $1500.
So the next few trading days in gold should be very interesting in determining whether that happens or not.
But the real point is not weather gold is using Phase 2. or Phase 3. for support to bounce off – the real point is that the fundamentals for owning gold that kicked off this bull run some 12 years ago haven’t changed a bit. In fact each and every year they get stronger and stronger. And the money printing around the world is accelerating not slowing.
As much as there are attempts now on by the central banks of the world to pretend that the crisis is over and the money printing is coming to an end (something we’ve heard over-and-over since 2008, only to be proved wrong time and again), they know that it isn’t – they simply have to pretend that it is otherwise their interventions would fail in a heartbeat as people rush out of paper and into something tangible.
This is all that matters in gold, not the week-to-week or month-to-month price swings – in the end gold will be the last thing standing, but knowing ‘when’ that end ‘is’ is impossible.
Also, nobody said that there wouldn’t be bumps along the way to try and shake you out from holding the only thing that can protect you when this crisis plays out in a spectacular grand finale style at some, as yet unknown, future date.
On days like this Richard Russell, of Dow Theory fame, has a perfect quote to end on:
“A bull market will make every attempt to shake people off…and only the very strong and disciplined investor will have the courage to ride this bull market all the way to the top.”
Leaving the only question that matters for you to ask yourself – to you intend to be one of them?
- Gold price drifting lower in $ terms – still up on the day in terms of £s
- Gerald Celente: This is the beginning of something much bigger
- Gold price in pounds reaches £1125 – only 6% off all time highs
- Andy Warhol Gold Picture Sells at Auction
- Obama takes the ‘evil’ speculators meme to a new level
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