"If the precedents set in 2003 and 2004 are anything to go by, Gold is due. Due to do what? Due to take out its bull market high of $US 456.00."
(Gold This Week - September 9, 2005)
Well, as you almost certainly know by now, Gold DID take out its bull market high (spot future closing basis) of $US 456.00 on Thursday when it closed at $US 456.30. Gold then went on to take it out a bit more on Friday when it closed at $US 460.30. That is the highest spot future $US Gold close since mid 1988, more than seventeen years ago.
It took about nine and a half months, but Gold has finally exceeded the highs it set way back on December 3, 2004. As we said here last week, that's in keeping with Gold's performance in 2004 and in 2003.
The first thing to do when an event like this happens is to take a look at the charts. There are a number of charts on these GTW pages and even more at our main Gold charts page. Here is the one that we find the most interesting right now
This is the $US 2 x 3 Gold point and figure chart:
As you can see, this chart shows the entire Gold bottom formation (1999 - 2002) and the subsequent bull market to date. The bull market is defined by an almost perfect channel which has confined the bull market since it began about four and a half years ago.
What is most interesting about this chart, besides the beautifully symmetrical channel, is the position of the line which defines the TOP of the channel. Take a good look, the upper trendline of the channel right now stands a little above the $US 500 level.
Now here's something else we said on this page last week:
"Before the present Gold bull market began in 2001, Gold had spent more than three years (with a couple of short-lived exceptions) between $US 250 and $US 300. That was the bottom from which the present bull market has sprung. But the bigger "bottom formation" is between $US 250 and just over $US 500. That is the formation which has held Gold throughout the quarter-century period of rampant credit creation which brought about an era of financial asset price inflation instead of the real goods price inflation which prevailed in the 1970s."
As you probably know, the all time high spot future close for Gold was $US 850 on January 21, 1980. The last time that Gold closed above $US 510 was a $US 514 close on April 7, 1981. That was on the way down from the $US 850 all time high to the bottom of the post January 1980 bear market. Gold reached that bottom with a spot future close of $US 296 on June 21, 1982.
In the more than twenty-three years since June 21, 1982, spot future Gold has only closed above the $US 500 level eleven times, all of them taking place in January/February 1983. The highest spot future close during that period was a $US 510 close on January 31, 1983. Since February 1983, Gold has only approached the $US 500 level once. That was in the aftermath of the 1987 stock market crash. The spot future Gold close reached as high as $US 497 in December 1987.
Now, take another look at the $US 2 x 3 Gold chart above. Note that the line at the TOP of the present upchannel is very close to the $US 510 level. That is the major resistance point on this chart. It also happens to be right at the top of a HUGE trading range which has confined the $US Gold price for almost a quarter of a century - "the quarter-century period of rampant credit creation which brought about an era of financial asset price inflation instead of the real goods price inflation which prevailed in the 1970s." (see the quote above)
Right now, $US Gold has only just broken above a level it reached more than nine months ago. It is strongly signalling, but has not yet confirmed, the next upleg in its bull market. This bull market is already more than four and a half years old. In duration, that makes it the longest bull market since Gold and the Dollar were "decoupled" in 1971. In the 1970s, there were TWO Gold bull markets. The first saw Gold rise from $US 35 to $US 195 between August 1971 and December 1974. The second one saw Gold rise from $US 102 to $US 850 between August 1976 and January 1980. Both of these bull markets were less than three and a half years in duration.
Since April 1981, $US Gold has been in what is, in effect, a GIGANTIC quarter-century trading range. The TOP of that trading range is $US 510 - the level that defines the TOP of the upchannel in the current $US 2 x 3 Gold chart. That $US 510 level, not the $US 456 level which Gold has now managed to break through, is THE resistance level for $US Gold.
When a well-defined and long-lasting channel like the one on the chart above is broken through to the upside, that is almost invariably a signal for an acceleration (often an EXPLOSIVE acceleration) of the upmove. When the top of the channel coincides with a VERY long-lasting trading range, an upside breakthrough is usually the beginning of a HUGE increase in "price".
There are two perfect examples of this. The first is Gold itself, which was confined to a peak of $US 35 for nearly 37 years - from January 1934 to August 1971. The second is the Dow, which was confined to a peak of 1000 for sixteen years, from December 1966 to the end of 1982. Gold's rise from $US 35 peaked with the price more than twenty-fold higher. The Dow's rise from its 577 low in December 1974 to its January 2000 high of 11723 was a twenty-fold rise too.
There is absolutely no necessity for the present Gold price to "repeat" what happened to Gold in the 1970s or the Dow in the 1980s-90s. Precedents are not slavishly followed in markets. But what IS a near certainty is that if and when Gold manages to break through its quarter-century bottom formation and forge above the $US 510 level, it is likely to go much higher much faster than has been the case to date in its bull market.
How fast and how high? That's for the future and the future is uncertain. Let us point out, however, that in terms of "purchasing power" the equivalent of Gold's $US 850 high in 1980 is now a little over $US 2200.
Back in August 1999, spot future Gold reached an absolute bottom close of $US 253.00 on August 25. A 100% rise on that level would put Gold at $US 506.00. A 100% rise is not much for a major and long-term bull market. In 1999, for example, the Nasdaq was up more than 86% in ONE YEAR. In 1979, Gold rose more than 126% in ONE YEAR.
Nor is an expectation of a much more than 100% increase in a major bull market in any way outlandish. Remember the surveys taken of stock market investors in the late 1990s, the ones which discovered that they expected annual gains of 18-20% - IN PERPETUITY? Then there is oil, which was less than $US 11.00 a barrel at the end of 1998 and "only" $US 40.00 a barrel last December.
Gold rebounded from prices just below the $US 300 level to challenge the $US 500 level in 1982-83 and again in 1985-87. Now, it is "rebounding" again, but this time from prices just above the $US 250 level. It has not yet challenged the $US 500 level, but is now on the verge of confirming the next leg up in what is already its longest-lived bull market post 1971. So far, there have been no "fireworks" in Gold's slow but steady rise in $US terms. The closer Gold gets to $US 500 the higher the likelihood that they will start. And if and when Gold exceeds $US 500 and then $510, it enters a whole new "playing field", one which has not been in use for a quarter of a century.
That is, potentially, a very big deal indeed. Stand by and stay tuned. If Gold keeps rising at the start of the coming week, the "gap" between present levels and $US 500 could be filled in very quickly.