When we last discussed the topic of Gold in late February we suggested Gold would have to spend more time in correction mode. Sure enough, that is what we have seen the last few months. Apathy is beginning to take root in the hearts of all but the staunchest bulls. We here at Mytwocent$ believe there is a real possibility the intermediate bottom in Gold - meaning one that will hold permanently - is in at $1525. Reasoning as follows:
Gold traded a whole summer last year around $1525, plus or minus a few percent. In a bull market, once consolidation levels are decisively broken to the upside - the bull doesn't look back. Battle tested Gold veterans remember the fight for $425-$450 back in 2004 & 2005. It took FOREVER for Gold to breach it, but when it did, it was "off to the races". The battle for $1000 back in 08-09 also seemingly took forever. Again, once it was broken to the upside, the Gold price never got close to $1000 again - see why 2 paragraphs down. Whats important to remember from the 20 month struggle in 04-05 to best $425-$450 level is the bears could never sell it off more than about 15%. For 20 months in 08-09 Gold struggled with the $1000 level. In that correction the bears managed to sell it off no more than 24% from its march 08 high.
We would suggest the $1900-$2000 level will prove similar to the two levels mentioned above. As of this moment Gold has been sold off 22% from its high in that range last fall. The good news is the 22% off sale is certainly deep enough to qualify as a correction. The bad news is we are only 10 months into the correction. Prior bull behavior (20 month consolidations) suggests we may not see new highs until next spring. WAIT!! Where have I heard that before - Oh, I know - right here.
Round numbers, like say $1500 weigh heavily on investors minds for psychological reasons. As Gold takes out one of those round numbers it garners attention. After spending considerable time above those round numbers, those same round numbers start to look like a steal. Who wouldn't want to own Gold at $500? or a $1000? In like manner, I suspect there is a whole cadre of folks Looking to get long at $1500. Methinks they will be left standing at the station, waiting for a train that never comes. This will keep the proverbial bull traveling light.
Keep in mind also, 3 years running Gold has made important lows in the summer. This pattern is likely to continue, meaning we will likely get another test of the support at $1500 before summer is out. Bagholder believes the reason this Gold Bull makes bottoms in summer is because the bears have to work summers to pay for their poor investment philosophies. In the mean time, Gold bulls are on vacation during the summer - as only they can afford to take vacations, thanks to their wise investment philosophy. Stated another way, in the summer, when the cat is away - the mice will play.
Bagholder apologizes for the lack of attention given to his blog recently - he is pre-occupied with starting his own business. A daunting task in this environment, to say the least. Thanks for your understanding. I will post some thoughts on Silver soon.