The top question I’ve been getting from subscribers these days is about what’s going on with gold and whether or not its bull market is over. My answer? No way, no how!
Any pullbacks in the precious yellow metal, no matter how bearish they may appear, are opportunities to buy! The basis for that view …
First, the charts and technical analysis. As you can see from this chart, gold remains in a very strong, long-term uptrend. Even its sharp pullback in late August and September failed to come anywhere close to breaking the back of the long-term uptrend.
That’s not to say gold can’t pull back again. It can. But if it does, massive chart support remains at the $735 and $763 levels.
In fact, gold could fall to $643 and it would still be in a long-term bull market that would lead to new highs down the road. I don’t believe gold will get that low, but if it does, I would buy it with both hands.
Second, gold’s inflation-adjusted price — $2,270 — has not yet been reached, indicating the price of gold can nearly TRIPLE from current levels. What assurance do we have that this inflation-adjusted price will be reached? Well, if history is any guide, and I believe it is, then I hold that there is near 100% certainty that gold will reach $2,270 before its bull market is over. And quite possibly, it will go even higher.
Keep in mind that throughout history, asset classes always reach their inflation-adjusted prices, no matter what the asset class is. They wax and wane, falling behind the inflation curve at times … catching up and exceeding their inflation-adjusted prices at other times.
That’s true of all asset classes, be they bonds, stocks or commodities. And this is especially true in the post-1971 period where paper money’s relationship with real money has been severed via the elimination of the gold standard.
Third, the bear market in the dollar, one of the principal forces behind gold’s bull market, is not over. I’d like to believe that it is, but it’s not. The dollar has much more to go on the downside.
Yes, the dollar has had a decent rally over the last few weeks. But if you study the long-term chart of the dollar index, you’ll see how the index is merely bouncing back a bit, yet remains deeply embedded in a bear market and even still below levels seen just last year. In other words, the dollar’s recent rally is nothing more than a bear market bounce.
Fourth, there will be more financial failures and this will lend underlying support to the price of gold. Gold is not just an inflation hedge; it is also a financial crisis hedge.
To see this clearly, consider the relationship between gold and silver. Silver is collapsing since it’s largely an industrial metal and, thus, does not perform well during a deep recession or depression.
Hence, one would expect gold — as a monetary metal — to vastly outperform silver. That’s exactly what’s happening. An ounce of gold now buys nearly 80 ounces of silver, up from about 50 ounces a year ago.
It’s important to keep an eye on the gold/silver ratio. The ratio’s historical high was reached in 1939, when one ounce of gold bought 153 ounces of silver. I believe the ratio will top that level before this current financial crisis passes.
And when it does, that will be one of the signals I’ll use to call an end to the crisis. It will also signal that the global economy is ready to start growing again.
Fifth, gold’s supply and demand fundamentals support a continuing bull market. Demand for gold in dollar volume reached a record high in the second quarter of this year … and by all indications, the third-quarter stats should show yet another record high in demand.
Meanwhile, supplies continue to tighten. Many major gold miners are forecasting a slide in production for the second half of this year.
The production drop-off will probably turn out worse than expected as new mine exploration and mine expansion plans have come to a halt due to the world markets’ credit freeze.
Also important from a supply point of view, central bank sales of gold are running at their lowest levels since 1999.
Bottom line: Both short and long term, the demand/supply equation in gold favors a long-term bull market.
Gold is just one of many topics on the minds of investors as we navigate through the worst crisis to ever hit the U.S. That’s why in my Real Wealth Report this month I answered my readers’ most burning questions about these unprecedented times in the markets, how they can protect their money, and how they can profit beyond their wildest dreams. Take a look.
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- Gold’s bull market not over by a long shot! Since July 31, gold has fallen hard ― by more than $100 an ounce. But don’t be fooled by this...
{ 2 comments… read them below or add one }
What about silver? Will silver rise with gold? Also would it better to own physical gold or gold stocks?
Being that the Fed and world central bankers expertly planned and executed this “crises” for the purpose of moving toward a single world currency while dominating all the governments of the world, I think that gold is now finally
and forever being decoupled from money. Gold will always be a thing of value and beauty, but no longer related to money; much like silver.