Since about mid-year 2013, however, gold pretty much stopped making lower lows. (Yes, I know gold technically made a lower low in November 2014, but look how quickly it recovered.) Gold has essentially been range bound for 18 months. But something has changed recently that's worth paying attention to. Up weeks are now accompanied by strong volume while down weeks are accompanied by weak volume. It's almost as if the mentality has changed from "sell the rips" to "buy the dips."
Yes, it's frustrating for the bulls to watch gold go from $1300 to $1200 after such a strong start to 2015, but in the bigger picture, this is all part of a long term basing pattern. Look at that nice, rounded bottom beginning to take shape. As stated above, volume has been supportive of late and momentum indicators have refused to give up ground. This all tells me that we are slow but surely (slowly being the operative word) getting over the hump. Keep in mind that gold went from $250 to $1900 over a 10 year period without a correction lasting more than a year. In other words, gold was due for a prolonged breather. Here's the monthly chart:
Take Apple, the darling of the last decade, for example. On a split-adjusted basis, Apple rose from a low of $0.43 in 1997 to over $5.00 by March 2000. In the span of 2.5 years, Apple's stock rose by almost 1,200%. Then, from March of 2000 to April 2003, the stock proceeded to fall back under $1.00, an 80% decline. The bull run was over, right? You already know the answer to this, but hell no, the bull was just getting started! From 2003 until just last month, Apple's stock rose an astonishing 12,400%. If you threw in the towel as an investor in late 2002 or early 2003, you would have missed one of the greatest bull runs in history.
Of course, gold is still in the midst of a multi-year correction so we have a long way to go before it begins step #3 above. I mention all of this about AAPL because I believe gold is in what is known as a commodity super cycle. According to Ahead of the Heard:
Commodity super-cycles are defined as decades long price movements in a wide range of commodities. Super-cycles differ from shorter term fluctuations in three ways:
- Super-cycles are demand driven because they follow world GDP
- Super-cycles span a much longer period of time with upswings of 10-35 years, taking 20-70 years to generate complete cycles
- Super-cycles are observed over a broad range of commodities, mostly inputs for industrial production and urban development of an emerging economy
If upswings can last 10-35 years, then odds are that the current gold super cycle has plenty of time remaining. The last super cycle peak-to-trough occurred from 1980 - 2001, a span of about 20 years. If the ensuing trough-to-peak cycle is the same duration, then we can expect the current bull run to last another 5-6 years, taking us to 2020 or so.
In closing, these are long-term charts and long-term predictions. Day-to-day gyrations can be maddening so take them with a grain of salt knowing there's a much bigger picture playing out.