The Ultimate Bear Low for Gold?
Gold took a whuppin' Monday with Asian markets dramatically selling off. One explanation was that China's report - the first since 2009 - on how much its gold holding increased was far less than expected. And since these expectations were based on what many call reasonable assumptions regarding China's accumulation of gold bullion since 2009, it wasn't just the anemic increase that spooked traders; it was the fact that the Chinese was clearly lying. Or so they say.
Two points here:
First, the fact that the Chinese government was less than forthright, even telling what some consider an outrageous lie should spook no one. As a general rule, all governments lie when such lying is thought necessary or simply convenient. Regarding the Chinese government, questions regarding its reporting of economic activity have been raised even as their economy was indeed growing by leaps and bounds. And let's not forget that since the Chinese government is dominated by the Communist Party, lying outrageously presents no problem for Communists at any level, so the government lying would be expected; and lying outrageously would be, again, expected. Conclusion: China's reports, if they are a lie, likely had little of real substance to do with the sell-off. So any thoughts about how much lower gold may go from here ought not be based on the Chinese government's actions now or in the future.
Second, gold has been in a huge corrective cyclical bear market since its 2011 highs. Yes, I realize some belief gold to be in a secular bear market that will last many more years. But let's not get into a secular-cyclical debate here. Both views hold that it's a bear market in gold. So with that in mind, what can we expect regarding gold's price now?
Let's keep this simple. But before we do, let's put aside all the technical analyses that you can find at the drop of a hat on the internet. Without passing judgment on the efficacy of these analyses in providing either direction, timing, or price levels, we'll just skip all that for now. These analyses may prove accurate in predicting the nearer term action of gold. But what we're interested in here is the bigger picture, the ultimate direction and price target for this gold bear market. So here goes.
Gold closed (using round numbers for the sake of simplicity) over 1900 in 2011, after an historic 10-year bull market. If we simply use typical bear market action to guide our thoughts about where gold is headed, we can easily say - based on historical bear market price action for various items - that the target price for gold's bear may be half of its previous bull market rise. If gold began rising around 200 (again, rounding) in 2001, and we subtract 200 from 1900, that gives us a rise of 1700. Half of 1700 would 850. Subtracting 850 from 1900 gives us 1050.
An alternate view says that you simply halve the price from its high. Gold hit a high of 1914 in 2011. Half of that would be 957.
So gold somewhere around 1,000 - or even somewhat below that - should not surprise, certainly not shock anyone.
This doesn't mean that gold will go that low. And it doesn't mean it might go below 1,000 and thereby be poised to resume its long-term bull market. Timing remains an unknown.
We also note that bear markets typically last 1/3 to 1/2 as long as the preceding bull. Gold experienced an historic 10-year rise beginning in 2001. 2011 marked 10 years. 1/3 of 10 is a bit more than 3; 1/2 or 10 is 5. Since it's been coming up on four years since the bull market highs, we're more or less smack in the middle of the historically anticipated length of this gold bear market.
From our perspective, these numbers take precedence over any short-term panicky scribbling. And while we don't pooh-pooh technical analysis, these numbers provide us with a better framework in which to view gold's price action.
Two points here:
First, the fact that the Chinese government was less than forthright, even telling what some consider an outrageous lie should spook no one. As a general rule, all governments lie when such lying is thought necessary or simply convenient. Regarding the Chinese government, questions regarding its reporting of economic activity have been raised even as their economy was indeed growing by leaps and bounds. And let's not forget that since the Chinese government is dominated by the Communist Party, lying outrageously presents no problem for Communists at any level, so the government lying would be expected; and lying outrageously would be, again, expected. Conclusion: China's reports, if they are a lie, likely had little of real substance to do with the sell-off. So any thoughts about how much lower gold may go from here ought not be based on the Chinese government's actions now or in the future.
Second, gold has been in a huge corrective cyclical bear market since its 2011 highs. Yes, I realize some belief gold to be in a secular bear market that will last many more years. But let's not get into a secular-cyclical debate here. Both views hold that it's a bear market in gold. So with that in mind, what can we expect regarding gold's price now?
Let's keep this simple. But before we do, let's put aside all the technical analyses that you can find at the drop of a hat on the internet. Without passing judgment on the efficacy of these analyses in providing either direction, timing, or price levels, we'll just skip all that for now. These analyses may prove accurate in predicting the nearer term action of gold. But what we're interested in here is the bigger picture, the ultimate direction and price target for this gold bear market. So here goes.
Gold closed (using round numbers for the sake of simplicity) over 1900 in 2011, after an historic 10-year bull market. If we simply use typical bear market action to guide our thoughts about where gold is headed, we can easily say - based on historical bear market price action for various items - that the target price for gold's bear may be half of its previous bull market rise. If gold began rising around 200 (again, rounding) in 2001, and we subtract 200 from 1900, that gives us a rise of 1700. Half of 1700 would 850. Subtracting 850 from 1900 gives us 1050.
An alternate view says that you simply halve the price from its high. Gold hit a high of 1914 in 2011. Half of that would be 957.
So gold somewhere around 1,000 - or even somewhat below that - should not surprise, certainly not shock anyone.
This doesn't mean that gold will go that low. And it doesn't mean it might go below 1,000 and thereby be poised to resume its long-term bull market. Timing remains an unknown.
We also note that bear markets typically last 1/3 to 1/2 as long as the preceding bull. Gold experienced an historic 10-year rise beginning in 2001. 2011 marked 10 years. 1/3 of 10 is a bit more than 3; 1/2 or 10 is 5. Since it's been coming up on four years since the bull market highs, we're more or less smack in the middle of the historically anticipated length of this gold bear market.
From our perspective, these numbers take precedence over any short-term panicky scribbling. And while we don't pooh-pooh technical analysis, these numbers provide us with a better framework in which to view gold's price action.
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