Ruler, Sharpie and Compass have a new ally in The Battle. Today, Calculator joins The Fight against The Forces of Darkness.
Never fear. MathMan is here.
Let's start with gold. Below is a chart to which you can refer if you'd like to check MathMan's math:
MathMan believes that this current "bull market" in gold began in January of 2001, with gold at $275/ounce. Using that as a basis, gold then rallied for over seven years, finally peaking at $1033 in March of 2008. That is a move of $758.
A Fibonacci 38.2% retracement of that move would have been:
$758 x .382 = $290
$1033 - $290 = $743
Thus, $743 was a likely target for the inevitable "correction". When it came during The Great Financial Crisis of 2008, it should not be surprising that price overshot just a bit. In those crazy days of fear and illiquidity, simple technical targets were easily overrun. It should be noted, though, that the final bottom was just a shade lower, at $683, in October of 2008. Then, in creating a bottom, price made a low of $700 in November 2008 and $742 in December of 2008 before resuming the bull market rally in January of 2009. Therefore, MathMan concludes that the 38.2% number is significant for measuring future corrections within the gold bull market.
Let's also look at the correction on absolute terms. Again, price peaked in March of 2008 at $1033 and then fell to $683 in October of 2008.
$1033 - $683 = $350
350 ÷ 1033 = 33.88%
OK, here comes the interesting part. Using the same math, gold began it's rally in January of 2001 at $275. It peaked in September of 2011 at $1920. That is a move of $1645.
$1645 x .382 = $628
$1920 - $628 = $1292
Thus, a reasonable target for this current correction is something similar to what took place in 2008. Though $1292 is a full 38.2% correction, could price overshoot again? Of course.
Let's also use the same absolute comparison to 2008. Again, back then, price fell 33.88% from its highs before reversing and resuming the bull market.
$1920 x .3388 = $651
$1920 - $651 = $1269
Ultimately, the questions you have to ask yourself are these:
- Do you believe that the bull market for gold is still intact?
- If so, under what conditions could this current correction be "worse" than that of 2008?
- Does it even matter? (Not really. I just keep buying. They'll pry MathMan's gold from his cold, dead fingers.)
Now let's look at silver. Here's a chart for your reference:
In the immortal words of Mister Miyagi, "numbers different, but same".
The first thing we have to consider is that silver is likely tracing out a full, 100% retracement of the move that began in August of 2010. Back then, our infamous BoS (Buyer(s) of Size) appeared and silver rallied from $18 to $49 in just 8 months. Giving it all back would take us back to $18. As I mentioned in the podcast yesterday, this is the most likely scenario for a price bottom.
However, MathMan would like to take a stab at silver, too, just for fun.
The bull market in silver began with a low of $4.04 in November of 2001. It then rallied to a high $21.35 in March of 2008. That's $17.31. It then fell to a low of $8.80 in November of 2008. before bottoming and resuming the rally that ultimately took it to $49.75 in late April of 2011.
OK, from March 2008 to November of 2008, silver price fell from $21.35 to $8.80.
$21.35 - $8.80 = $12.55
12.55 ÷ 21.35 = 58.78%
Using an absolute 58.78% drop versus the high of $49.75 leads to this:
$49.75 x .5878 = $29.24
$49.75 - $29.24 = $20.51
Hmmm. MathMan thinks that's pretty interesting. Now let's go back to those Fibo levels again only let's use the entire bull market as our basis and see what we get.
$49.75 (4/11 high) - $4.04 (11/01 low) = $45.71
$45.71 x .618 = $28.25
$49.75 - $28.25 = $21.50
However, using this same fibo for the correction of 2008 yields this:
$17.31 x .618 (fibo level) = $10.70
$21.35 - $10.70 = $10.65
Obviously silver overshot by quite a bit back then and it will likely do the same here. By spiking down to $8.80, silver actually retraced 72.5% of the $17.31 move from 11/01 to 3/08. A similar 72.5% spike low retracement of the entire move of $45.71 is this:
45.71 x .725 = $33.14
$49.75 - $33.14 = $16.61 (yikes!)
Again, so what's the point? MathMan has no idea. He's banged out so many numbers now that he's feeling a bit punchy.
At the end of the day, it's all about how you answer these questions:
- Will the paper derivative method of pricing precious metal will continue?
- If it continues, is the precious metal bull market that began back in 2001 still intact?
- If not, which of the fundamental conditions that prompted the bull market have changed?
- If the fundamentals haven't changed, is this just a correction similar to 2008?