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What Can We Learn From Gold Trends Over The Last 40 Years?

Friday November 22, 2013 09:59

There are three kinds of trends—an uptrend, a downtrend or a sideways trend. Throughout gold's history in the last 35-40 years, we've seen all three.

For traders or investors, it's important to have a macro understanding of how markets move—and to know what kind of large cycle a market is in now. Let's take a look back at some historical gold charts and see what gold history in recent decades can show us in pictures. Charts show where prices have been, but can also offer clues to repeating patterns and what may lie ahead.

Let's take a look at Figure 1. From 1976 into the 1980 peak, nearby gold futures rallied from $101.50 an ounce to $873 per ounce—a big bull trend. People move markets and people trade on emotions. Fear and greed are seen on this chart. There is the fear of missing out on a move and the greed of wanting in on a "sure thing."

From there, the market backed off and settled into a sideway trend from roughly 1982 to 1996, which saw gold trade in a sideways trend between $514 and $281. A big long sideways trend.

The late 1990's saw gold retreat into an even lower price range from about $325 on the upside and $250 on the downside. A final snooze for the bears and a total capitulation on the part of the bulls. Many were proclaiming gold to be a "dead" market and obsolete at this time.

However, the cycle changed again and by 2001-2002 the gold bull woke back up and launched into a decade long uptrend cycle, which has peaked for now just above the $1,900 mark in September 2011.

What can we learn from this chart history going forward? Notice how the move lower from Oct. 2012 to summer 2013 may be similar to the September 1980-June 1982 sell-off—it could be the precursor to another big long sideways trend.

What are some key takeaways here?

  • All markets move in cycles.
  • Gold has likely finished its decade-long bull cycle and is shifting into a sideways cycle.
  • In the sell-off after the 1980 peak, the market retraced over 61.8% of the entire rally move.
  • The current sell-off from the 2011 peak has not even retraced 50% of the major bull cycle—that means gold is in a stronger longer-term position now than it was after the 1980 price collapse.

Looking ahead, there may be a lengthy period of large sideways trade. The daily December Comex futures chart shows the range to be roughly $1,490 to $1,182 per ounce. That will certainly offer tradeable trends on a multi-day to multi-week basis for position traders. Retreats toward the range bottom could offer buying spots for longer-term investors.

There are many who believe that there will be another crisis around the corner for our global financial system, whether that is next year or in three years. Gold has retreated off its 2011 peak, but has not even retraced 50% of its major bull cycle. Gold bulls are just biding their time. But, be prepared, the sideways cycle could take some time to play out.

Kira Brecht is managing editor at TraderPlanet.

By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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