Over the last couple of months I’ve been pretty short-term bullish on precious metals. I’ve done my best to emphasize the “short-term” because structurally this space is still a mess. Gold specifically has been churning around these levels since its collapse in price last summer. With a declining 200 day moving average and a ton of overhead supply, it’s hard for me to be see this as structurally constructive at this point.
On Wednesday night, my friend Ari Wald of Wolfe Research presented in front of the New York City Chapter of the Market Technicians Association. One of the charts he brought up was the long-term chart of Gold. He compared the recent price action to what we were seeing in the late 90s. Remember, no two scenarios are ever exactly the same. But I think it’s worth discussing in order to open our minds to different road maps for the yellow metal.
Click chart to embiggen
The reason I bring this up is because longer-term I don’t have a lot of conviction in either direction. I think this bottoming out is going to be a process. I tend to lean in the direction of a secular bull market in Gold, but after such an awesome run, a cyclical consolidation is well-deserved.
You’ll notice in the chart above that in the late 90s, after the initial bottom (which Ari is comparing to last June’s lows), prices had only just started their bottoming process. It took several years to build the base necessary to send Gold prices up over 650%. This 1998-2002 bottoming process is another great example of the old saying, “the bigger the base, the higher in space”.
I can definitely see a scenario where Gold prices go back down to 1000, where we not only have that psychological level of support, but also resistance from 2008 & 2009. Last June could have very well been the bottom, I have no idea. But in all likelihood, this is probably going to be a bigger process from a secular perspective. I think Ari did a nice job at pointing out the last bottoming process to help open our eyes to different scenarios.
So let’s stay open minded….
Tags: $GC_F $GLD $SI_F $GDX $SLV