In the last 40 years, gold has gone through two great bull markets, with a miserable 20-year period of sideways-to-lower prices in between. As that frustrating 20-year period unfolded, gold’s many fans had no idea what lie ahead, what those 20 years would bring. Reading gold’s great supporters way back in 1980, a la Jim Dines, Harry Shultz, and Harry Browne, it was all about the thesis that although the market was overdone on the upside, before long prices would resume their upward march. NOBODY had any inkling of the misery that the 1980s and 1990s would bring to gold’s loyal followers. That blind spot — the inability to conceive of gold going nowhere, or down, for year after year after year — is a troubling reminder of the too-often lack of objectivity from some of gold’s biggest supporters. I wonder if we’re facing a similar, frustrating period in the years ahead.
With the status of gold’s last great bull move now in question (I’ve recently rated the odds of the bull’s demise at greater than 50/50), we once again may reasonably expect several years of sideways to lower prices. This evaluation is based on a number of reliable (i.e. rather high probability of accuracy) charts, and the message they send. You’ve seen many of those here in recent months, with these two charts being representative of the big picture.
[Hear More: John Doody: Gold in Contraction & Consolidation Phase]
This high-low bar chart shows the entire bull move since 1999, with the two most probable trendlines drawn on a semi-log scale, which gives us the most reliable way to evaluate gold’s trend. By breaking below the upper, more aggressive line, gold warned us of possible trouble. The lower, more important trendline has been only marginally violated — which is why you hear things like gold’s bull market may be over. A break below the summer’s lows would be enough to categorize this chart, and therefore gold, on a long-term basis as bearish.
The following is an excerpt of Richard Russell's Dow Theory Letters. To receive their daily updates and research, click here to subscribe.
