It Must be a Gold Bull Market, Because…

It must be a gold bull market because…

  • Gold analysts (code for gold obsessives; analysts cover asset markets, including gold), who for years pumped people to be bullish despite an obvious bear market, are now taken seriously again as they issue the same dogma.
  • A Technical Analyst months ago advised “30,000 coffins” would be needed for gold bugs and has since gone quiet while another is bearish, no bullish, no bearish again, no bullish again.  Charts are only one component of gold market management, but the TA’s are again enthralling the gold community with lines and squiggles.
  • Yet another gold bug TA somehow manages to tie in cycles and God for a bullish view of gold and silver and a 2016 crash for world markets.  There’s a niche for everything, I guess.
  • The major media as well is in obsession mode, as we find out about bullish calls on gold by people smarter than we are, like Soros, Gundlach and Druckenmiller.
  • And to balance it all out, there is a man and his computer advising that gold has not yet seen its cycle lows.

Gold Bull Market – It goes on and on… all of them have ardent followings.  What to make of that?

The above are just observations, not reasons to think gold is in a bull market.  But with the hyper kinetic environment currently in play I am reminded of the 2001-2011 period and how annoying it was to observe the sector during a bull market (unlike the bear, which was relatively easy; just avoid it).

Gold Bull Market – It was annoying to read the reasons that Goldman Sachs’ Technical Analysis team gave for a major correction when gold was at 800 (uh, it went up) and it was annoying to read the gold promoters’ reasons why you had to own gold in the face of the oncoming Armageddon (I agree that gold is a sensible portfolio holding, but I don’t agree with the trade in fear that so often goes with it).  Gold is simply value and insurance, as I noted in this and many other articles back then.

Moonshine or Strychnine (Dec. 4, 2005)

Gold Bull Market
Gold Bull Market

“Sadly for paper bulls, this long term chart implies a bottom at around 1.00+-, which could mean the S&P and gold will both have a price of 1500, or 500 (these are just random numbers and actual values will depend on inflation, deflation or “muddle through”). But the implications of this chart as well as current macroeconomic fundamentals ( US’ massive deficits, gold rising in global currencies, etc.) are that paper assets and gold will continue to head toward parity, in price. So, while many people celebrate gold’s rise and obsess on the stock market’s price action, I would advocate getting clean and sober, ditching the still and taking a cold hard look at this.

Gold is not a speculative asset at its core. It remains the same, sitting there like a lump on a log. Timeless, it doesn’t care what is happening around it. It is liable for no debts and it pays no interest. It is all the other stuff that is in motion. The moonshine is effective at blurring an investor’s vision to all of this.”

Well, the SPX-Gold ratio did indeed bottom “at around 1.00+/-“ about a decade later.  But more importantly, gold never changed, not for one moment during the rest of the bull cycle or ensuing years of out performance by the stock market.  During the bull rush years it was value and insurance and it was exactly that during the bear phase.

So if you agree with me on these simple points (not to say you do, but… ) do you also agree with me that getting caught up in the hype and mania of the new gold bull turned ‘inflation trade’ (ref. our tracking of what may be a maturing ‘inflation’ play on Fed policy confusion here, here, here and here) is probably getting a little too much headline space and a little too much momentum?  Now, I make mistakes all the time, but one mistake I will not make is to confuse momentum for something sound that I can make rational plans by.

This article is actually inspired by emails received from two NFTRH subscribers, one in essence challenging my bullishness on gold and the gold sector and bearishness on the US dollar, and the other in essence challenging my bullishness on US stocks (especially the Semiconductor sector) and my calling precious metals a blow off situation (I am calling commodities a short-term blow off situation, but the precious metals could get caught up in it due to their positive correlation as part of the ‘all one market’ lately, as Bob Hoye would say).

The reason I highlight these views (with their permission) is because that is gold, inspiring spirited (to say the least) debate on both sides of the equation.  But the debate can keep us from understanding the simple concept of long-term value (as noted before, my gold position is nearly 1.5 decades old).  The rest is all momentum and noise.

Gold Bull Market – From Subscriber ‘M‘…

Hi Gary,

Nice report, a few remarks.

What you see as a dollar bear trend is a BULL FLAG. Everything you describe in your report is dependent on the direction of the dollar. I would not want to bet against it, not here, not within the next year or more.

Until every gold bug is destroyed, we will have rallies like we had on Friday. This is not 2001. Rates were much higher and leverage was much, much less. I understand analogues can be useful if, ceteris paribus, the backdrop is the same…it is not. So 2001, just like the 1970’s analogues, are worthless.

There is no INFLATION anywhere. Hence, no inflation trade. WE have been in a epic deflation dating back to 2000 or more. Talk of such is ridiculous. Your own favorite metric, TLT, shows such [my metric is actually the long bond’s yield, AKA the Continuum].

Gold Bull Market – I do ‘M’ a disservice by greatly abbreviating his input, but you get the picture.  Everything has been dependent on the direction of the dollar and that has been exactly my point in calling this an “inflation trade” (only a bounce thus far) and it is exactly the reason I have tuned out the gold bug community and its relentless pumping; commodities, precious metals, stocks… all part of the anti-USD ‘inflation trade’ thus far.  My response…

Very interesting ‘M’.

One point, my favorite indicator is not TLT, it is the 30 year yield… the long-term continuum. As noted last week (I think), that is the LIMITER (100 month EMA) to a prospective inflation trade until proven otherwise and it has not proven otherwise for decades upon decades.

So I really think you and I are not so far apart. I realize you are big picture person and I am too. But I have got to manage smaller pictures as well and what I am seeing implies that the smaller picture (measured in months to maybe a year) is

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