The Golden Bear of 2011 (continued)

I'll not add too much to what is already on the record, but instead be brief and let you weigh the case for yourself.

Let's start. Here is today's chart of Comex Gold monthly:

OK That's GC at the open today.

Next: here's what I wrote here Sunday, September 22, 2013 at 4:24 pm in this article: The Golden Bear of 2011


The Golden Bear of 2011

By argentus maximus

Evaluating the golden bear

Readers here are to a large extent of a type that likes to buy gold and silver and other precious metals in a desire to avoid damage from inflation, and risk of confiscation and loss caused by lawless behaviour of a damaged and crooked financial system.

So that makes readers here vulnerable to losses caused by deflation, or gold price suppression, which are both characteristics of stagflation. And there can be no doubt that stagflation, or financial repression if you prefer to call it that, is exactly what the past 10 years has brought, and as long as the sovereigns are indebted up to their eyeballs, we should expect the next 10 years to look very much the same.

So we have inflation, but in the wrong assets.

Or we have deflation in the wrong assets.

Or we have state selling of gold to suppress the price of extra national currency.

I guess I could put it at least a dozen other ways, but you get my point I’m sure.

So I propose to forget all the corrupt application and non applications of the law, and forget the IMF, World Bank, BIS, DC, London City, Fed, BOE, BOJ, ECB. I will also forget QE to insiders, tax hikes on outsiders, fantasy accounting, fantasy inflation and GDP statistics. I am going to forget all those for today’s blog article and put them aside.

I will look at something else instead.

Here is an interesting subject: Is gold in a bear market, and if it is, is the low in place, and if that is the case, is that bear market over? In short: What can we tell about the current status of the bear?

I will only look at gold, and I will use technical analysis, and I will compare this time (which is not different!) to other times in history during the past half century, when similar events took place. So in the comparison, fundamental events get compared with other fundamental events but by using technical chart tools as the comparator. I will look at the 12 month price change in gold.

As I see it we had the 1920s-30s, the 1945-1950s, the 1969-80s and the 2000s as relatively well documented deflationary times to compare. But for this blog article it's the years from the 1970s stagflationary recession up to today that I will concentrate on here.

The 2011 Gold Bear.

So let’s get started. This will be a minimalist project, focusing on what matters bigtime. I will attempt to remove all distractions from the analysis.

I have reproduced the gold price chart in three charts, each one showing a decade or more of gold’s price movement. There is a technical oversold indication marked wherever the price of gold declined approximately 25% in 12 months periods.

This is interesting because there have been relatively few times this happened during the approx 40 year period.

Here they are:

1976 - 1986

and next ....

1986 - 2000

I will comment on two things that pop out at me from these charts. They are in relation to the quite short periods of time when gold 12 month percentage change got down into the -20% to -25% region in the past.

  • There can be a low in the percentage change of -20%-25% and gold rallies more or less promptly after registering that price/date. The lower the %change low, it seems, the more prompt the rally.
    • There can be an oversold reading as just described, and followed by a rally, and then later gold falls back to it’s low area or even makes a lower low, but the percentage change fails to fall to a lower level.

    That is to say, whenever the 12 month percentage change fails to confirm gold’s second low by making a second percentage change low. In this case the rally which followed has generally been of a size that one would describe as a new bull market in gold.

    Now coming up to the present day - here is Gold from 2000 - 2013:

    So if one examines the present gold chart with these historical behavioural tendencies in mind, (only tendencies remember!) one can see that on an annual basis gold is indeed long term oversold enough to warrant either a rally or a new bull market.

    But one can also say that gold after a new rally (if it gets going) gold was to turn around and decline again and fall back to this price region a second time again , or even a lower price, and the 12 month percentage change was to fail to confirm with a new low that would be a better signal. That would suggest a new bull market in gold, rather than a rally was in progress.

    This simple but value based technical approach suggests that in the long term gold is very oversold, and it is oversold enough to warrant a rally. Indeed a rally (in it's infancy ) is what we see during the past few weeks, notwithstanding the selling of last week. But the duration of this current rally is an unknown quantity, and due care should be exercised for another possible downswing by gold to build the kind of base that provides a better footing for a new bull market to grow from.

    argentus maximus



    (and now we continue our blog entry for today)

    Now would be a good time to go back to the top and look at the updated chart for Comex Gold, so you can compare today with the historic charts provided in my old article.

    This is technical analysis in action, with charts used thoughtfully, and with some experience brought to bear.

    Remember it's big picture analysis, and not placed here with the slightest attempt to bring it down to the day or week. I fine tune elsewhere. Usually it takes three lows to establish if a major low has been made, so we're in early days. Also the lows I use for this timeframe are spaced one to three months apart! That's a way of saying a bear market low is not a single event but rather a process, or a sequence of events which build into the low. So far August, December, possibly soon including Feb, April. The detail is not in this analysis.

    So it's for your perusal ...... to provoke an examination of market reality, and some of the problems both soluble and insoluble contained in markets.

    However, if you currently operate under the impression that the events of the day, or the news headlines, or the decisions at the Fed, have anything to do with the price of gold coming to this juncture in the way that it has, please re-read my article of two and a quarter years ago, quoted above. It was written at a time when the news was not "created" and the decisions of those politicians and Central Banking players had not yet been made.

    Finally, should you currently dismiss "charts" for some reason for not having a practical value in investment, you might consider re-examining the practical accuracy of your thesis of what moves markets.

    That's not saying that interpreting charts is a simple endeavour. Interpretation is a higher level of difficulty than superficially looking, and of course at any time a wrong interpretation can be made. But I leave this here as a reminder to keep looking harder at those charts until their visual language slowly becomes understood more and more as weeks and months looking at them pass into your experience.

    argentus maximus


    The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice.

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