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Timing the Bull Market in Gold

dali clock_1.jpgThe bull market in precious metals is not an easy one to ride. We believe that most investors should buy and hold, adding to their positions on dips. Trying to time the highs and lows is a bit like trying to read a Dali clock. Many of us were lured in by a beautiful technical set up and had the rug pulled out from underneath us. The oversight was partly that gold stocks hadn’t corrected enough, but moreso that they hadn’t corrected for long enough.

From the start of this bull market, there have been six major uplegs and six major corrections. The average upleg has been about 100% over an average 156 trading days. The average correction has been about 30% over 88 trading days. These are key statistics that every gold investor should internalize. The largest of the uplegs have been followed by corrections of about 35%. The May to June correction was a little shy of this benchmark, at only 31%. This is especially low considering that it followed the most powerful upleg to date. Still, the more glaring signal that the correction had not ended is that it only lasted for 23 trading days. So while the HUI was creating higher lows, forming an ascending triangle and breaking out above key resistance, there was still an underlying need for further correction.

We have long respected the views of Adam Hamilton, who publishes the Zeal Intelligence Newsletter. Adam goes into detail about timing the corrections in his most recent article.

So where does that leave us today? Well, the correction has now been running 95 days (well above the 88-day average) and we have seen some consolidation of gold in the $580-$590 range. The HUI has also found support around 290 and technical indicators are turning bullish. However, there is still the possibility for further correction. For the depth of this correction to equal that of previous corrections following massive uplegs, the HUI would need to fall into the 250’s. And if you subscribe to Fibonacci trading, the 38.2% retracement also points the HUI into the 250’s. Speaking of Fibonacci, I just watched the movie “Pi” again, which is the story of a paranoid mathematician searching for a key number that will unlock the universal patterns found in nature (and the stock market). Artsty, intelligent and a bit disturbing, but a very interesting film that touches on Fibonacci numbers, the golden ratio, etc. Pi (1998)

News reports are predicting an uptick in gold demand in the coming weeks as Indian consumers are splurging ahead of the festival buying season. These purchases may have been delayed due to higher prices, but we may see some catch-up buying after the recent decline in gold prices. Indian media projects that a promising monsoon may ignite demand in the world’s largest bullion market. If gold pushes above $600 and the HUI breaks 300, we will consider this correction over and look to load up on gold and silver stocks. We have yet to profile a few of our favorite mining companies, so look for more picks over the coming weeks. This may prove to be the best buying opportunity so far.

We participated in the Carnival of Personal Finance #67, hosted by Canadian Capitalist. You can view plenty of interesting blogs on personal finance by clicking here.

By | 2017-03-23T14:06:43+00:00 September 24th, 2006|Gold & Silver Commentary|

About the Author:

Jason is the founder of goldstockbull.com. He previously worked in data analytics for the world's largest research firm, consulting to Fortune 500 companies globally. Jason eventually leveraged those skills to trade successfully full-time and after helping friends and family optimize their investments, he launched Gold Stock Bull and The GSB Contrarian Report newsletter. Jason is a cycles investor with a contrarian eye for identifying undervalued assets. He has built an expertise in both the precious metals and cryptocurrency markets. Jason believes in honest money, limited government, decentralization of power and enjoys studying alternative economic models.