So the market continues to bounce back, further confirming what we had suspected all along: that this was yet another healthy correction in an ongoing, albeit tired, bull market. If the S+P can top 1851 this week that would really push things along nicely.
Most bull markets last 4-6 years, and this one turns 5 next month. As I said at the start of 2014, we must remain flexible this year and alert from any shifts in trend, but the bull is in control until proven otherwise.
But don’t be sad about this bull getting old because you can make money from bear markets too, and we’ll guide through those. But also, let’s not forget that there’s always a bull market somewhere in something, and we could be witnessing the birth of a new one in gold…
Gold caught a lot of people by surprise when it began a nasty downturn in early 2013. Until that time, investing in gold with a backdrop of government money-printing and mainstream pro-commentary seemed like a no-brainer (and it was for those who came to the party early), but the market always likes to punish arrogance and complacency… and the dumb money.
But let’s remember that the last big bull market in gold (triggered by the eradication of The Gold Standard in 1971) had a big drop before the final buying-frenzy. This recent drop could have been the gold-bull’s final attempt to shake off the dumb money before the big rise comes- the one that takes gold well over $2-3,000 and beyond? As gold-skeptics howled that the gold-bull was dead in 2013, what troubled me was that this bull hadn’t died with the masses buying gold. A true bubble usually bursts when cab drivers and bag-packers are buying and giving out trading tips… and lining up outside coin dealers…
I wrote about gold on this site on January 20th when it got my attention by forming what looked to be a large ‘double-bottom’ pattern- a powerful and classic launching pad for big price moves in history. You can see it on the bottom right of the long-term chart:
And this week further progress was made as GLD broke up above the long term moving average (wavy blue line). Notice how all GLD’s previous attempts to rise got turned back by that (descending) moving average? Classic bear action. But what’s different here, apart from that potential double bottom, is that the moving average is no longer descending AND the price has finally pushed up above it. We’re not seeing the signal for a big rise just yet, but we are seeing the end of a persistent fall…
Throw into the mix the fundamental argument that world governments have become net buyers of gold instead of sellers, and we could have the perfect storm brewing.
If I was being aggressive here I’d say that this was the birth of a new bull market in gold, or even that fabled dip before the long rise into bubble territory I mentioned earlier.
If I was being conservative, I’d wait to see GLD get comfortably above $130 (to confirm that ‘double-bottom’), and at the same time see that long term moving average turn up, perhaps with the shorter term moving average cross up over it.
Anything can happen, but there’s no doubt that GLD’s action is turning positive, and our recommendation services are starting to select gold and silver miners in preparation for big profits.
Best,
Jim.
Note: the author has a financial interest in the assets mentioned in this article.
