Gold Bear To End With A Bang

bear and bull 8Jordan Roy-Byrne: For months we’ve been writing about the major bottom to come in precious metals. It appeared we finally saw it in late June as the metals and the stocks surged during the summer. Yet, these markets trailed off in August and it continued into October. The equities were down seven straight weeks. That gave way to an oversold bounce. Unless precious metals can close above their October highs on a weekly basis, the outlook remains bearish. While this bear market is finally coming to an end, don’t expect it to end quietly. At present Gold looks eerily similar to both Gold in 1976 and the SYP in 2009 prior to their major bottoms.

The first chart below shows Gold in 1975 to 1976. Gold’s sudden decline that began in August 1975 took it from over $160/oz down to $128/oz. It was a 20% drop in one month. After it rebounded it formed a marginal new low (A) and traded around $130 for about five months. Once Gold failed at the declining 50-day moving average and lateral resistance it plummeted to its final low.

Gold in 2013 has formed a very similar pattern. The first panic low occurred in April which was followed by another low several months later. Gold then recovered back above the first panic low to point B. Point C labels the decline below the first panic low and a temporary bottom. Just like in summer 1976, Gold rallied up to a strong confluence of resistance (lateral and 50-day moving average) and failed.

I’ve aligned both of the above plots on the same scale starting with their first panic low. The blue is Gold in 1975-1976 and the black is today. The 1976 template has Gold bottoming in early March. However, we can clearly see that Gold today is a few months ahead of that.

Next, take a look at the S&P bottom from 2008-2009. It followed the exact same pattern!

Let’s compare the three situations. In Gold from 1975-1976 its bearish consolidation (from first panic low to failure at resistance) lasted nine months and its final decline lasted two months. In the S&P 500 from 2008-2009 its bearish consolidation lasted only four months and its final decline lasted no more than four weeks. Gold’s bearish consolidation lasted about six and a half months. Judging from this data we could project Gold’s bottom to come in about six weeks.

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