Wednesday, September 05, 2012
While we are waiting for the current narrow trading ranges in the Dow and the S&P to resolve themselves I thought it would be interesting to take a look at the status of the bull market in gold which has lasted 14 years and counting.
On the monthly bar chart above this post you can see that the gold bull market has been punctuated by several trading ranges which have lasted a year or more each (blue dash ovals). The latest one started in the summer of 2011 when gold hit an all time high near $1925.
Bull markets in commodities tend to end in wild bursts of enthusiasm which show up in weekly and monthly charts as V-shaped tops with very steep angles of ascent and then descent. Rarely is such a top followed by an extended trading range. In fact the drop from the $1925 top in gold has so far been smaller in percentage terms than the 33% drop which followed the 2008 high. This is reason to believe that the bull market in gold is still intact and that the current trading range will be resolved to the upside.
My best guess right now is that gold will rally to $2300 or so at which price its value in dollars would match the inflation-adjusted high price established in the year 1980. That top was followed by an 18 year bear market.