How Old is the Gold Bear?

By: Eric Noel | Thu, Nov 24, 2005
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There is no question that early 1980 was the birth of the Gold Bear. I still remember the mania leading up to it; my mother telling me to save all pre - 1969 quarters as they were "pure silver" and they would be "worth a fortune" someday. The public was going nuts for the shiny metals. After the first big move down and massive counter trend rally over the summer of 1980, the Gold Bulls got even more bullish saying that NOW it was really going to over 1000 dollars but the Gold Bear had been born and was just cutting his teeth. Alas, he never reached back to his all-time highs.

We know the story since then. There have been a series of rallies and sell-offs between approximately 250 and 500. Each rally brought out the bulls and each sell-off shut them down.

Enter 2001, when the Gold Bear turned a Fibonacci 21 years old. At the time, NOBODY was bullish on gold and most Gold companies were completely hedged. But the rally over the past 5 years has been no different than the past; it has brought the bulls out of retirement and a raft of fundamental arguments in favour of 3000 dollar Gold such as: 1) rapid devaluation of the US Dollar; 2) hyperinflation; 3) conspiratorial manipulation by the central banks, which can not be sustained; 4) world shortages; 5) Gold is the only "real money"; yadda; yadda; yadda. I don't know a thing about these "fundamentals". For all I know maybe they have merit. From what I have seen, however, markets rule central banks and not the other way around. Just take a look at the bond market chart along side the Fed. interest rate changes and you will soon notice that they are nothing but trend followers. In short, they seem, to me, to be irrelevant.

The gold bulls will now tell you that the Gold Bear died at the age of 21. Now is the last chance to get in before the price of gold crosses above the DOW price! Even my local bank is trying to sell me on the notion of stocking up on gold bullion these days as it is "the time honoured store of value". Now, if Gold had quadrupled in the last 15 months like GOOG, I might be able to understand the bullish sentiment but it is wheezing to get back to its December 1987 high. What gives?

Enough about fundamentals. The charts of GOLD since 1980 tell me that the Gold Bear is alive and well and he is toying the with Bulls as he approaches 500, a level not seen since late 1987, a LUCAS 18 years ago. Further, he shot out of a multi-month triangle last summer and is on the cusp of completing 5 rally legs up from that triangle. Triangles are penultimate moves as Elliott observed, with few exceptions, as noted by Neely. Overall, the move since 2001 has been non-impulsive, indicating that it is not the beginning of a new bull market but yet another bear market rally. Had it been impulsive with everyone still saying: "there goes GOLD again . . . back up to the top of the trading range" I would be buying it.

The cruelest joke the Gold Bear might play on the bulls would be to pierce the 500 dollar mark by 5 dollars and get the public to jump in both feet first before he heads south back to 250. If he bottoms out in 2009, that would make him 29 years old (also a LUCAS number). For some reason the Gold Bear loves to reverse on LUCAS numbers, in all time frames.

So to answer the question posed: almost 26 years old (double fibo of 13). But he seems to me like the kind of guy who just won't live past 30. See you in 2009 when everybody is bearish. We'll use our short profits to load up the truck!


Author: Eric Noel

Eric Noel LL.B., LL.M.

Copyright © 2005 Eric Noel

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