There was a scene in the movie, "For Love Of The Game," where Billy Chapel (played by Kevin Costner) plays his last game as a professional baseball pitcher. As he steps to the mound he is bombarded by his environment (the fans, the players, the field, the smells, the lights, etc.) and soaks it all in.
Perhaps one of the greatest mistakes an investor can make is to remain entrenched in one’s thinking and subject themselves to “data mining” in which they only read and/or listen to news articles or data that supports their views. What is often in excess supply are opinions, and what always seems to be lacking is humility.
In November, gold investors were encouraged by the Federal Reserve's openness about its intention to keep the printing presses running at full capacity. The Federal Reserve Bank of Dallas President Richard Fisher went so far as to say that their current interest rate stance may be appropriate until 2011.
We look to be heading into 2010 with one of the most dramatic rallies after a bear market in over 100 years as the S&P 500 is up more than 65% off the March lows and is up roughly 23% year-to-date. With such a dramatic rally in the stock market one would expect to see a vibrant economic recovery ahead given that the stock market acts as a discounting mechanism.
Since the start of the decade gold has been in a strong secular bull market in which it has had only one negative year (2001) while the S&P 500 has had four. Gold’s strong performance has produced a cumulative return of 311.54% for an annualized return of 15.18% per annum this decade.
Since the July lows we have witnessed gold rocket northward first through the $1,000 per ounce mark and then the $1,100 per ounce mark, hitting an all-time high of $1,152.85 today. The move in gold off the July lows led to a more than 25% gain in the yellow metal with silver putting in an even more impressive move of more than a 42% rise.
With gold reaching an all-time high, which by the way no other asset class can boast, some may be wondering if the bull market in gold is over as it has exceeded its prior peak. In terms of determining bubbles or significant peaks, relative valuation analysis has proven effective in identifying bubbles. As will be shown in the article below, no matter how you want to slice it, I believe gold is by no means close to a bubble, and can easily rally to higher triple-digit figures in the months and years ahead.
It looks to me like we could be forming the end of a blow-off rally. It’s difficult to measure how high stocks could go from here, but there are some clear shifts in volume, world market trends, and sector rotation that are signaling this bullish trend is coming to an end over the short to intermediate-term.
The markets have corrected since peaking in the middle of October and there appears to be a decisive rift in the financial community between the bulls and the bears, with the bears calling for an end to the rally off the March lows while the bulls maintain that we remain in a cyclical bull market.
Much was made in June about the Dow non-confirmation as the Dow Jones Industrial Average exceeded its May high while the Dow Jones Transportation Average did not. The non-confirmation was not an early warning sign that the market rally was finished, but rather warned of a short-term correction that ended with the Dow non-confirmation later resolved in late July as both averages exceeded their June highs.