So far in the $US Gold bull market, there have been two major corrections. And after each of them, Gold has gone on to post new highs. Given the almost inexorable rise of the $US Gold price since late September, and especially so far in November, a lot of people are starting to muse about the current bull market leg getting a bit long in the tooth. In fact, if we compare the current rally with the one which took place after $US Gold's first correction which started in May 2006, we will find that the opposite is the case.
With that in mind, let's compare the two major $US Gold corrections and the rallies to new bull market and all time highs which have taken place after both.
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It took just over five years, from April 2001 until May 2006, for Gold to move from its second bear market low (the first having taken place in August 1999) around $US 255 to a peak of $US 721. That was the level where Gold fell sharply into the first correction of the current bull market.
The duration of this correction is shown on the chart to the left. Here are the relevant details:
The actual correction phase of this first major $US Gold correction took place in 2006 - nearly a year before the first signs of what was to become the global financial crisis were apparent to most people. But as Gold fell from its May highs around $US 720, the chorus began that the bull market was over. That chorus swelled as Gold fell below the $US 600 level in mid June. And it did indeed take Gold nearly a year and a half to regain its May 2006 highs.
Once Gold did get back to those May 2006 highs in mid September 2007, it surged almost 40 percent higher over the next six months. And in that surge, it finally exceeded its very old January 1980 highs and went on to post new all time highs.
This is Gold's second correction, a bigger and slightly longer lasting one than the previous correction. You can see this correction in the chart to the left and in our long time Point and Figure chart below labelled "Reverse Head and Shoulders". Again, here are the relevant details:
As you can see, the more recent correction was longer lasting and deeper than its predecessor. So far, Gold has only broken out of that correction for six weeks. After Gold broke out of the first correction in Mid September 2007, it roared higher for the next six MONTHS.
The other point to be made, and we make it on a weekly basis in the table below, is the while Gold is certainly making almost daily new highs in terms of the US Dollar and currencies tied to the US Dollar, it is still well below highs set earlier THIS year in terms of most other major currencies.
We do not think we will see the "top" of this leg of Gold's bull market until Gold is once again making highs in terms of ALL paper currencies.
(Chart appears here in original analyis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28 last year.
On February 20, as you know, Gold made it all the way back to the $US 1000 level. But it did NOT break through the $US 1000 barrier. Until this week, what had been traced out on this chart is the right shoulder of a gigantic "reverse" head and shoulders formation. But on September 16, spot future Gold CLOSED at $US 1020.20. That breaks decisively above the $US 1000 "double top" on this chart and revalidates the entire bull market - from the bottom. Late in September, had the downturn on the chart, only to see Gold burst above its September 16 high to put the final re-validation on the entire $US bull market. And this week, Gold has risen to just short of $US 1120.
In February 2009, spot future Gold closed above the $US 1000 level for the second time. While the close did not quite equal that of March 2008 in $US terms, it set new all time highs in terms of many other currencies - the Yen being an exception. That was because of the recovery of the US Dollar which had taken place since March 2008.
On September 11, 2009, spot future Gold closed above the $US 1000 level for the third time. It has remained above the $US 1000 level continually since the end of September. November 13, 2009 is exactly a year since the bottom of the $US Gold correction. Over that year, Gold has risen $US 411.70 or 58.4 percent.
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Gold priced in Japanese Yen has now (only just joined $US Gold in the plus column since February 20. But take a look at the percentages by which the other two currencies remain below their levels of February this year. To take the most "extreme" example, at current (October 30, 2009) exchange rates, it would take a Gold price of $US 1458.40 for the Aussie Gold price to equal the all time high it set on February 20, 2009.
