Gold Bull or?
"People who cannot recognize a palpable absurdity are very much in the way of civilization." - Agnes Repplier 1858-1950, American Author, Social Critic
We wrote an article earlier this stating that the Gold was not in a true bull market as was the case with the Dow. We decided it was time to examine the scene once more and update our looks. The scene has changed quite a bit and we have some good news and some bad news. Let's start of with the bad news; unlike the oil market Gold is still not in a universal bull market as it is not rallying in all the currencies like oil did. For a look at a true bull market you can read our previous essay titled anatomy of a true bull market http://www.financialsense.com/fsu/editorials/ti/2004/0621.html. The good news is that it has started to rally in some of the stronger currencies out there. So what we are seeing is a bull market that is gaining strength and it seems that it's going to be just a matter of time before we experience a universal gold bull. We still believe that we will see on nice decline which will probably provide the necessary ingredients for the next power up phase and cause Gold to rally in the face of all the stronger currencies.
It's very encouraging to see gold rallying in the face of some of the stronger currencies. When we performed this same analysis earlier this year, it was declining in terms of the Australian dollar and the British Pound; this is no longer the case.
We believe that we will experience one slow long possibly brutal correction ( brutal in the sense that it will drag on and make people think the Gold bull is over) which will provide one of the best mouth watering opportunities to go long for those who missed the first phase of this bull. The next phase is where we will see some truly explosive action. However the pain cycle is going to be the next stage, before we go into the pleasure phase and watch Gold stocks and Gold bullion soar to new highs. The current action by Gold stocks has flashed a strong inter market negative divergence signal as they have not responded to the new highs that Gold bullion was setting on a daily basis several weeks ago. You can see this clearly in our previous article.
The dollar also appears to have put in a bottom or is very close to putting in a bottom and possibly rallying for 6 months plus. This is simply going to be a strong bear market rally and not the start of a new dollar bull. The strength of this rally will determine the extent to which Gold bullion will correct. Just remember this nothing can go up in a straight line forever no matter how good the fundamentals are. Just look at oil, the fundamentals are far better for oil than for Gold currently. Oil is a necessity without it the economy would come to a grinding halt; the same cannot be said for Gold. Yet despite all this oil has already undergone a pretty decent correction. Corrections are necessary as they flush out the weak players and help provide strength for the next phase.
"Pure truth, like pure gold, has been found unfit for circulation because men have discovered that it is far more convenient to adulterate the truth then to refine themselves." - Penny Hoque, Tall and thin