Gold at 27 Year High; Platinum and Oil at Records
Gold is glittering, soaring more than $100 since mid-August, to a new bull market high and to its highest level since January 1980. The six year bull market is strong and solid.
Crude oil, platinum, lead and wheat have been even more impressive, reaching record highs. Lower interest rates have given the commodity markets a boost. A mega rise is underway and it'll likely last for years.
REASONS WHY GOLD AT NEW HIGH
The most obvious reasons why gold surged higher is due to the falling dollar. The dollar index fell to a record low when the Fed cut interest rates, which helped push gold up sharply. If the Fed continues lowering interest rates to ward off a slowing economy, this could cause gold to soar as the dollar falls further.
Lower rates this year could spur other world central banks to do the same and if so, it could also boost demand for gold as an alternative to all currencies.
Uncertainty & Crisis
Once again, an economic crisis caused gold to rise. An unsound financial system with monster deficits is good for gold. Easy money is good for gold. The world is slowly moving out of the dollar, which is another plus for gold. Tensions in the Middle East are good for gold. Basically, gold rises during times of uncertainty and crisis and that's currently what's happening.
Inflation fears have also pushed gold up. The record high in oil and other commodities is helping to fuel these fears, which are unlikely to end any time soon.
Demand for gold is growing rapidly, which is also bullish. Gold buying in Asia and India is up sharply. Our good friend Brien Lundin says that India expects demand this year to be 50% above last year's levels. That goes along with the idea that India's growth is following China's.
Chart 1, courtesy of Brien, shows that physical demand from the West is robust as well, based on the massive buying in the gold exchange traded fund (GLD). Plus, some central banks have been buying, and the Fall is a strong holiday demand season when the gold price tends to rise.
GOLD'S BULL MARKET
There are several ways we've been measuring gold's bull market. Chart 2 illustrates one of these ways and it shows gold since 1979.
When gold first turned bullish in August 2001, we identified steps for the new bull market. The steps began to develop as the 1999 and 1990-96 prior peaks were surpassed.
The big moment for the bull market was when gold broke above the $500 level in December, 2005. This took gold into the fourth and final step, which is where it's been trading since then. This reinforced that the bull market was solid.
With gold now at levels last seen in 1980, gold is on its way to completing this step. Once it rises above $850, the fourth step will be complete and that'll be the next big milestone. Gold will be at a record high and it will then enter a new super strong bull market phase.
Gold has been a great investment. It's up nearly 200% since 2001 and it's up 20% so far this year. Even so, gold could still go much higher. Within gold's big picture, the mega bull market is still young.
GOLD TIMING: On track
Over the past year, many investors worried that the bull market was about over. Six years, as the thinking went, was a long time for a bull market to last without a decent correction.
This could be a legitimate concern but all bull markets crawl a wall of worry. Most important, gold has stayed solidly above its 65-week moving average since August, 2001. This means gold's trend is up and it will stay up above this average now at $653 (see Chart 3A). This is a simple yet very effective way to stay invested with the major trend.
Within this uptrend gold has intermediate highs and lows, which is where our timing indicator comes in (see Chart 3B). This chart helps identify when gold in at an intermediate high or low level and what's likely to occur next.
For now, gold's been rising in what we call a C rise since June 27. Gold held firm in mid-August when most markets fell and it's now at a new bull market high, reinforcing that this is a strong C rise, which is very important.
Remember, C rises in a bull market tend to be gold's best intermediate rise when it moves up to a new bull market high, and that's been the case since 2001. So the current C rise has essentially completed its purpose.
If gold now continues on to test or surpass its record high, then this C rise will become spectacular. But if it ends and stays below $850, that's okay too. Keep an eye on $700 this month as gold will remain strong in a C rise above that level.