The Last Gold Bear Market:
Gold fell from $US 499 to $US 325 between December 1987 and March 1993. The extent of this fall from top to bottom was 34.87%. The duration of the bear market was 5 years and 3 months (63 months).
The Present Gold Bear Market:
Gold fell from $US 414 in February 1996 to a low of $US 253 in September 1999. The extent of this fall is 38.89%. With no bull market yet established, the present bear market has lasted for exactly 5 years (60 months).
$US 260.90 - the spot future close
(up $US 2.40 on the day - up $US 2.70 on the week)
$US 267.35 - the 20-week MA
$US 272.91 - the 40 week MA
First, as you can see from the charts to the left, the technical picture for Gold has improved over the past week, but there is nothing as yet to give any type of a strong signal that Gold's recent flirtation with its 1999 lows was THE bottom.
But to get a better handle on exactly what is going on, we need a better perspective. So, let's take a close technical look at what's going on here. First, open this longer term chart (it will open in a separate window) and refer to it as we proceed. Over the past two weeks, Gold has come very close to its 1999 lows. On Feb. 15, Gold closed at $US 255.10 on a spot future basis. On Feb. 20, Gold closed at $US 256.10 with an intraday low of $US 255.00. The 1999 spot future low close, set on August 25, was $US 253.00 with a $US 252.50 intraday low.
Now take a look at the major downtrend line on the chart. This line is anchored way back at the end of the last $US Gold bull market (or the beginning of the present bear market) - $US 414 Gold - a level reached in February 1996. AS you can see, Gold has almost come back to touch this line.
Now, look at the horizontal dotted red line - representing the 1999 low. As you can see, this line intersects the downtrend line right below the current chart action. This intersection - at the $US 252-253 level - therefore represents a STRONG support point for spot future Gold.
The 1999 low has not - quite - been reached. In the meantime, the line that confined the Gold bear market up until the "Washington Agreement" Gold price spike is now at exactly the same level as that 1999 low. And now, with its $US 2.40 rise on Feb. 23, spot future Gold has regained the $US 260 level.
As we said in this commentary last week:
"As long as the $US 250 level remains intact, Gold remains in a "bottom formation". Should the price drop BELOW $US 250, then what was a "bottom formation" becomes a continuing BEAR market."
With technical support now having converged at the 1999 lows, it would take an EXTRAORDINARY turn of events for Gold to fall below that level. The $US 250 level "SHOULD" hold. If it doesn't, then we will know for certain that a financial CRISIS is at hand. If Gold falls below $US 250, the most likely scenario is for a short sharp fall. Wherever that fall flattens out would be the place to buy PHYSICAL Gold with both hands.
The much more likely scenario, however, is that the 1999 Gold lows will hold, in fact, HAVE HELD. If that is the case, we simply await confirmation of a "bottom". The first criterion for that is for the spot future price to rise back above the line connecting the three previous lows (the black dotted line on the chart). After that, the spot future price would have to go ABOVE both its moving averages (20 and 40 week). That would happen at a spot future price just above the $US 270 level. After that, the shorter-term MA will have to cross back ABOVE the longer-term one.
All of this happened in Sept/Oct 1999, with the "Washington Agreement" Gold price spike. The upsurge didn't hold, because Gold couldn't hold above the $US 300 level. This remains the BIG TEST. As The Privateer has said many times, a new Gold BULL market cannot establish itself until Gold gets above and STAYS ABOVE $US 300.
However, to even get to $US 300, Gold will have to rise 15% from its present levels. We think that the bottom first established when Gold hit its 1999 lows is well on the way to being CONFIRMED. If that proves to be the case, it would be a shame to wait until Gold hits $US 300 before testing the waters.
That is especially true in the case of PHYSICAL Gold. In the case of paper claims to Gold and Gold stocks, the risks are MUCH higher.