Wednesday, October 18, 2017

Gold following normal bull market pullbacks as metal is primarily traded as a commodity through the paper markets

One of the more interesting things often missed when discussing gold and silver is that they are recognized and treated both as a commodity and as money dependent upon the perspective of the investor.  And as such, the ones who buy gold as wealth protection don't necessarily worry about price since a strong dollar protects their purchasing power the same as a strong gold price would, while those who look at gold as an investment tend to focus on prices through the lens of technicals and fundamentals.

So with this in mind, economist Jim Rickards on Oct. 18 pulled a piece of data discovered by billionaire investor Jim Rogers on how commodities trade in a bull market pattern, and came to the realization that even gold follows the same trend lines on their way to new all-time highs, which include a pullback at some point of upwards of 50%.

Gold could be in a long-term trend right now that spells dramatically higher prices in the years ahead. 
To understand why, let’s first look at the long decline in gold prices from 2011 to 2015.
The best explanation I’ve heard came from legendary commodities investor Jim Rogers. He personally believes that gold will end up in the $10,000 per ounce range, which I have also predicted. 
But Rogers makes the point that no commodity ever goes from a secular bottom to top without a 50% retracement along the way. 
Gold bottomed at $255 per ounce in August 1999. From there, it turned decisively higher and rose 650% until it peaked near $1,900 in September 2011. 
So gold rose $1,643 per ounce from August 1999 to September 2011. 
A 50% retracement of that rally would take $821 per ounce off the price, putting gold at $1,077 when the retracement finished. That’s almost exactly where gold ended up on Nov. 27, 2015 ($1,058 per ounce). 
This means the 50% retracement is behind us and gold is set for new all-time highs in the years ahead.Silver Doctors
10 Year Gold Chart

This is also why when investing in any commodity for the long-term, the concept of dollar cost averaging is vital since those who got stuck with buying gold prior to the 50% pullback will be able to re-coup their losses sooner over time by buying at prices well below what they did in 2011.

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