Gold: 14 Years and Three Patterns

By: GE Christenson | Tue, Mar 11, 2014
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Gold peaked in August of 2011 and fell erratically into December 2013.

Was that the end of the collapse, or is there more downside coming in gold prices?

Bearish Scenario: Listen to the banks who are forecasting weak prices in 2014 and thereafter. "Nothing to see here folks, the dollar has weakened drastically since 1971, gold sells for 30 times its 1971 price, but it's all good. Just move on and pretend... Gold will drop below $1000 before you can say 2016 elections..."

I'm not a fan of:

Instead of listening to self-serving banker opinions, let's examine the data. The following chart shows monthly prices for gold since 2000. Note that highs and lows as listed in the monthly data are slightly different from actual hourly highs and lows. For this analysis over 14 years, the differences are immaterial.

GC-055: Gold Comex (POit) Cont 1st @ NYMEX (Monthly bars)
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This table shows the price and approximate number of years.

Gold Price Table

Summary: The price of gold bottomed in 2001, rallied for 3.0 years, fell for 1.1 years, rallied for 2.8 years, fell for 0.6 years, rallied for 2.8 years, and fell for 2.4 years. Lows were about 4 years apart, highs were about 3.5 years apart, and the rallies lasted, on average, about 3 years.

Gold in December of 2013 had dropped to the lower logarithmic trend line after falling for 2.4 years. The patterns suggest that the next move should be a rally that lasts approximately 3 years to new highs near the top of the trend channel well above $3,500.

But there is more: (If you distrust Technical Analysis, skip this section.)

GC-055: Gold Comex (Pit) Cont 1st @ NYMEX (Monthly Bars)
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For those who have no faith in technical analysis:

Consider this GEM - Gold Equilibrium Model (thanks to Nick Migliaccio for the name). I summarized the model in this short article. The model is based on three variables and calculates the equilibrium gold price with no reference to oscillators or technical indicators. The GEM model projects a "fair" or equilibrium price for gold in March 2014 of approximately $1,580. Gold prices, based on this long-term model, are currently low and are likely to move much higher over the next several years. This long-term model produced an excellent statistical correlation with the smoothed price of gold over the 42 years from 1971 - 2013.


Conclusions

 


 

GE Christenson

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/