The 1970 s Gold Market Bearish Pause

n mid 1970 there was a pause in the overall gold bull market. The pause and intermediate trend change lasted about 2 to 3 years and was about a 62% retracement from where the entire run started in the very early 70’s. For a long time now as we have witnessed the current gold bull run upwards, I have always kept in the back of my mind this intermediate trend change that occured in the 70’s.

I felt that it would be critical to be able to identify when this intermediate trend change occurs in our current gold bull run. As I mentioned in my previous post, the 1970 gold bull versus the 2001 gold bull, the current gold bull run in terms of time is very close in age to the first major leg that was seen in the first half of the 1970’s. It is very close in age, but nowhere near close in terms of percent gain. In fact I would describe the current gold bull run as seriously lacking in horsepower and price performance relative to the early 1970’s.

But is it really fair to make an apples to apples comparison between the two time frames and periods of history??? The short answer is probably not. Two bull markets do not have to be the same, and if they were would probably make things too easy for everyone. The rule of alternation suggests that this gold bull be different in every way from the first.

The chart above clearly shows the intermediate term trend change I was alluding to above. You can clearly see the bearish monthly MACD crossover and the 61.8% retracement of the entire major first upleg since the very early 1970’s. I will be the first to admit that the MACD, even on the monthly time frame is and can be a lagging indicator. However, whenever I see a first or second bearish or bullish crossover in the montly MACD I always tend to err on the side of caution and skepticism for the sake of risk aversion and capital preservation. I do not follow monthly MACD like a blind mouse chasing after cheese in a mousetrap. I always also consider several other technical indicators and of course price itself. If price trend and strength is strong enough, any time frame of MACD will simply lag that price strength. In the case of the mid 1970’s this was not the case. That signal marked a significant and major trend change in the gold market, but of course it was only a multi year pause before the final blow off rally into 1980.

The chart to the left is the monthly price bar chart of the current gold bull market. Note that my assertion that we have only seen a 23% retracement since the lows of 2001 is incorrect. There was a 50% retracement in 2003, the largest one we have seen so far. So here again we have a negative and bearish crossover on the monthly MACD, somewhat similar to what we saw in the mid 70’s. Indeed, it could even be argued that there is a degree if price pattern symmetry between the two time frames. Note that in the mid 1970’s before the gold market really cracked into the major correction there was a long period of indecision but then finally a sharp downside break. So again, we need to figure out if the current price action is suggesting a strong bullish or bearish breakdown in gold. To answer that question I am looking out for gold to successfully break into the 448-450 area with a nice wide price spread. That would put it over a minor ‘creek’ (resistance area) area, show us that price was able to break a downtrend and open up the door to further price appreciation.

I will get into the daily analysis of the gold chart in an upcoming post.

But next I would like to bring your attention to a couple more long term gold charts for even more perspective. I always try to do as much top down analysis as possible ( long term down to short term) so that I have a clear head on where the major trend is moving. We always need to know if the wind is at our back or we risk getting washed out of the markets, in this case the gold market.

Ok, onward to the next long term gold chart…

Thomas

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