For months we've been writing about the major bottom to come in
precious metals. It appeared we finally saw it in late June as the
metals and the stocks surged during the summer. Yet, these markets
trailed off in August and it continued into October. The equities
were down seven straight weeks. That gave way to an oversold
bounce. Unless precious metals can close above their October highs
on a weekly basis, the outlook remains bearish. While this bear
market is finally coming to an end, don't expect it to end quietly.
At present Gold looks eerily similar to both Gold in 1976 and the
(NYSEARCA:SPY) in 2009 prior to their major bottoms.
The first chart below shows Gold in 1975 to 1976. Gold's sudden
decline that began in August 1975 took it from over $160/oz down to
$128/oz. It was a 20% drop in one month. After it rebounded it
formed a marginal new low (
) and traded around $130 for about five months. Once Gold failed at
the declining 50-day moving average and lateral resistance it
plummeted to its final low.
Gold in 2013 has formed a very similar pattern. The first panic low
occurred in April which was followed by another low several months
later. Gold then recovered back above the first panic low to point
B. Point C labels the decline below the first panic low and a
temporary bottom. Just like in summer 1976, Gold rallied up to a
strong confluence of resistance (lateral and 50-day moving average)
I've aligned both of the above plots on the same scale starting
with their first panic low. The blue is Gold in 1975-1976 and the
black is today. The 1976 template has Gold bottoming in early
March. However, we can clearly see that Gold today is a few months
ahead of that.
Next, take a look at the
(INDEXSP:.INX) bottom from 2008-2009. It followed the exact same
Let's compare the three situations. In Gold from 1975-1976 its
bearish consolidation (from first panic low to failure at
resistance) lasted nine months and its final decline lasted two
months. In the S&P 500 from 2008-2009 its bearish consolidation
lasted only four months and its final decline lasted no more than
four weeks. Gold's bearish consolidation lasted about six and a
half months. Judging from this data we could project Gold's bottom
to come in about six weeks.
There are a few more important things to note. Gold from 1975-1976
had a very weak rally from point A to B. It was in a weaker
position and then consolidated for the longest. That is why it had
the steepest final decline. The S&P in 2009 consolidated for
only four months. When it broke to a new low, it made its final low
the next week. Like the S&P 500, Gold today had a stronger
rally from point A to B. Also, unlike the other two Gold today has
been in a bear market for over two years. Considering these things,
I'd expect Gold's final bottom to be more similar to the S&P in
2009 than Gold in 1976.
How would this final decline in Gold affect the gold stocks?
The chart below is a monthly chart of the
HUI Gold Bugs Index
(INDEXNYSEGIS:HUI) and the
AMEX Gold Miners Index
(INDEXNYSEGIS:GDM ) which is the parent of the
Market Vectors Gold Miners ETF
(NYSEARCA:GDX) . Both markets bottomed in late June not to far
above the major support which dates back to 2004. In fact,
we referenced this chart when we penned an
editorial, one day before the June bottom
. Maybe Gold will break to a new low but the gold stocks won't. If
the gold stocks do make a new low, this chart is telling you that
it won't last for long. There is very strong support sitting right
below the summer lows.
Unless Gold is able to close above $1350 in the near-term on a
weekly basis then consider the short-term trend bearish. Gold looks
set to plunge to its final bottom. Gold bugs will cry manipulation,
) types will be mocking the Peter Schiffs of the world and many
will be calling for $900 Gold. I urge you to avoid all this
nonsense and focus on one thing. Get yourself in position to take
advantage of this bottom. It's the very smart money that is looking
forward to buying this bottom. I suspect the coming bottom will be
the one the typical huge rebounds originate from.
Editor's Note: See more from Jordan Roy-Byrne at
The Daily Gold