Let us reflect on Gold a little bit

I needed to write this post just as a way to consolidate all of my thoughts about the gold market.

I have plenty of charts and and specific things to say about those charts, but first I wanted to write about where we have been in the gold market so far and up to this point for the sake of perspective.

If you are completely new to the gold market then the next few lines of text are particularly important because they provide the important context of where we have been. ‘Where we have been’ is a very important piece of information for technical analysis because it provides data useful in predicting ‘where we are likely to go’.

Gold has been in a severe bear market for the 20 year period that begins in 1981 and ends in 2001.

This is simply a fact and you can verify it for yourself simply by looking at price charts of many popular commodity websites.

But why is this fact important? It is important because it helps to provide long term historical context about where we have been. It shows us that for a very long period of time gold had overall more selling pressure than buying pressure. It was a long painful cycle for many investors and traders because each rally, whether short or intermediate term within that period was never really sustainable and eventually sold off and hit new lows…

But the good news is that new bull markets are born out of previously painful bear markets. The new bull market in gold started in the year 2001 at the price of 257.00 .

Since that time and as of the date of this post, it has appreciated to 441.70 for a total of 71.86 percent. The 52 week high was 458.70 seen on December 2nd 2004. So the total percent gain from the lowest low to the highest high (the 52 week high) is 78.21 percent.

This 78.21 percent gain from the lows of 2001 represents bull market action. The tape action has been consistent in terms of trend strength and upside persistence.

For a little more perspective, consider that the first major leg of the gold bull run in the early 1970’s gained 442 percent. During this major first leg of that bull run the most retracement that was seen was 38 percent.

The first leg of the 1970’s bull lasted about 5 full years. That was 5 full years of strong uptrending price action. The current bull run in gold has so far given us about 4 and 1/4 years of uptrending price action.

There should be no reason for the gold run of the early 2000’s to be exactly the same as the first leg of the gold bull run in the 70’s. But the comparison is still interesting. Our current bull run, almost 5 years long has only returned 78.21 percent, whereas the 70’s first leg bull run returned 442% within a 5 year time span.

So, what does this mean for the current bull run in gold?!

A. It could mean that the current gold bull is and will be much weaker than the 1970’s gold bull in terms of price acceleration per unit of time and total percentage gain.

B. OR, it could mean that the most explosive leg of the current 2000’s gold bull run is immediately and very soon ahead of us to complete the first major bull leg!!

Option A or B is what I will continually attempt to analyze here at the Gold and Silver Trading Forum!

Thomas

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