A few weeks ago on February 4th, I penned an article for Kitco forecasting the gold correction trends and the likely outcomes. My opinion was that gold was pulling back to work off excessive optimism from the early December 09 highs. This type of pullback was orderly and there was a gap at 102.50 on the GLD ETF that I believed would fill. The following day, that gap filled and gold hit a bottom at 1042 and has rallied much higher since. I opined that the rally in the US dollar was merely cosmetic against other world currencies, and that Gold was still the preferred asset to accumulate and would begin to move regardless of the dollar moves.
The recent technical move up in Gold only confirms that we are in the final five year window in my opinion where the investing public becomes “aware” that gold is real money. In my August article last year, I discussed my thirteen year bull theory for the Gold market. The first five years from 2001-2006 was the “stealth bull” in Gold and Gold stocks. The average Gold Fund ran up 30% a year for five years compounded. By the time investors figure this out, they all pile in right near a five year peak. The market then chops for three years sideways in an up and down fashion, getting nowhere. Investors get bored, and then we move into the final five year stage where awareness takes hold and the bull cycle really takes off.
It is maybe the second inning of this five year stage, so the recent pullback in Gold to 1040 is normal, and the next advance is likely to be larger than the August to December advance. As this awareness grows, the bears get upset and try to explain how gold bulls are foolish. The investing public sometimes does not get enough credit for being correct, and in this case, those investing in Gold have been proven correct over and over again for the past nine years. They will be proven correct for the next few years as well as Gold continues to climb and befuddle the gold bears of the world. You will know that Gold’s bull market has topped when all of the bears are completely silent and every Gold bull is running around screaming buy at the top of their lungs. Every time I have seen Gold pull back in the past nine years I have chuckled at how fast the erstwhile Gold bulls start getting nervous and the Gold bears pile on hard. As long as I continue to see these behavioral patterns, and the technical and Elliott Wave patterns stay bullish, I will remain a Gold bull while trading around the important pivot highs and lows. As long as the pundits keep trying to talk Gold down, it will keep on rallying and fooling them until they are all believers. This is how the 13 year Tech Stock Bull unfolded from 1986-1999, and it’s how this Gold Bull is unfolding before your eyes.
It is interesting that Gold bottomed a few times and bounced off the 1070 areas, and then made what appears to be a final bottom around 1042 on February 5th and has rallied hard since then. In my opinion, Gold rallying past the 1040 and 1070 fibonacci pullback windows and now over 1,100 is indicative of a new wave of bullish advance taking us to $1325-$1350 at the next pivot top in Gold. It is as if Gold just cleared two important psychological hurdles at 1040 and 1070, and yet we see articles talking Gold down.
What many market pundits do not understand about Gold and it’s ascent since 2001 is that Gold is real money. Since most world currencies are nothing more than “burning matches” in a debt ridden world, Gold rises to the top of the asset class charts. If you look at the Dow Jones average relative to Gold prices in the past ten years, you can see what real money is doing. The Dow is flat over ten years now while gold is up nearly 400% in the same period of time. Measure the Dow or the SP 500 index against Gold as your money indicator, and we are still in a major 10 year plus bear market. Folks, the Kondratiev winter is still here and the weather is about to get a lot colder. In the winter cycle, all debt gets washed out of the system and this creates all kinds of carnage. Gold becomes favored “money” in this type of cycle. Once this cycle completes, the “spring” comes and we start anew. In the interim, look for Gold to continue ever higher and look for continuing trash talk by the pundits who don’t get it.
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