munKNEE.com Your Key to Making Money
Gold is sought after and saved when its price is rising in anticipation of rising
inflation or on concerns created by the collapse of currencies. In the final stage of long bull markets in any asset, however, prices often continue to rise further for no other reason than that they have been rising so dramatically for so long making investors confident they can extend expectations for more gains in a straight line into the future, rather than thinking cycles. [That begs the question no gold bug wants to contemplate “Could gold’s long bull run be over?” Let’s try and answer that question.] Words: 814; Charts: 3
So writes Sy Harding (www.StreetSmartReport.com) in edited excerpts from his original article* entitled Here’s Why Gold’s Long Bull Run Could Be Over.
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), may have further edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Harding goes on to say, in part:
Given that it’s been 12 years and the expected inflation has not shown up, and indications that the dollar’s multi-year plunge may have bottomed in 2008, [I contend that] gold may well be in that final stage where its fundamental supports are no longer there and its price is being maintained by speculative investors. [Let me explain why such a conclusion makes sense. Also read: Is Gold’s 13 Year Run Almost Over?]
Where’s the Expected Inflation?
2002 to 2005
Historically gold has been seen as a safe haven in times of rising inflation. No surprise then that it’s been in a long and impressive bull market since 2002, when:
- the 2001 recession resulted in significant monetary easing by the Fed in an effort to re-stimulate the economy,
- the 9/11/01 terrorist attacks resulted in dramatic increases in government spending on Homeland Security and
- the subsequent invasions of Afghanistan and Iraq began…
2005 to 2008
The inflationary expectations continued when:
- previous federal budget surpluses turned to growing deficits as the wars were ramped up while revenues from taxes fell as the economy continued to struggle.
Inflation had still not shown up to any degree but it seemed sure to do so at any time. So gold continued to attract unusual buying. By 2008 its price had doubled again to $1,000 an ounce.
2008 to 2011
The financial crisis hit in 2008 when:
- government deficit spending increased again as massive stimulus efforts were undertaken to prevent the subsequent recession from worsening into the next Great Depression.
Gold almost doubled again, reaching $1,900 an ounce last year but still the soaring inflation expected for a dozen years has not arrived, at least in the U.S.
Inflation from 1990 to 2012
During the decade of the 1990’s, inflation as measured by the Consumer Price Index averaged 2.8% annually. In the dozen years since 2001 it has averaged 2.5% annually. Over the past year is has averaged only 1.8%.
The Inflation of the 1970s
The last time gold enjoyed a huge bull market was in the 1970’s when inflation was truly spiraling higher in a struggling economy. Gold surged to a then record ‘bubble’ peak of $850 in 1979 but inflation averaged 7.7% annually in the 1970’s decade, and reached a high of 13.6% in 1981.
U.S. Dollar Weakness
Gold is also considered a hedge against declines in the value of currencies, particularly the U.S. dollar so the dollar’s plunge beginning in 2002 was also supportive of gold’s long bull market. The U.S. dollar peaked in 2002 at 120. By 2008 it had plunged to 71.
…[G]old…is sought after and saved when its price is rising in anticipation of rising inflation, or on concerns created by the collapse of currencies. [I]n the final stage of long bull markets in any asset, [however,] prices often continue to rise further for no other reason than that they have been rising so dramatically for so long. [That] makes investors confident they can extend expectations for more gains in a straight line into the future, rather than thinking cycles [and, as such, that is nothing more than speculation].
Given that it’s been 12 years and the expected inflation has not shown up, and indications that the dollar’s multi-year plunge may have bottomed in 2008, gold may well be in that final stage where its fundamental supports are no longer there and its price is being maintained by speculative investors.
Weakness in Gold Mining Stocks
Another warning may be coming from the gold-mining stocks. Gold bullion is only down $200 an ounce, 10%, since its peak at $1,900 an ounce last year. However, gold-mining stocks, which often lead the bullion in both directions, began their long bull market in 2001, a year before the bull market in bullion began, and potentially topped out in March of last year, having plunged 29% since. [Also read: Is Current Performance Stench of GDX About to Turn Into That of Perfume?]
Conclusion
Our technical indicators have been on a sell signal on gold since October, with a downside target of $1,670 an ounce, the level of its important 30-week moving average [Read: Update: Gold & Silver to Drop to $1,675 & $30.50 by End of 2012 Before Going to $3,950 & $117 by End of 2013!]. If it finds support there we could get another buy signal for another rally but if that support does not hold, it could be ominous for gold, given that two main reasons for its long bull market (the threat of inflation, and the plunging dollar) may no longer be there, leaving its main support over the last year or so as mostly speculative fever, and even it may be waning given the $200 an ounce decline from its peak at $1,900. Something to think about before jumping more aggressively into gold on the belief that this dip too is just another buying opportunity.
Sign up HERE to receive munKNEE.com’s unique newsletter, Your Daily Intelligence Report
- FREE
- Contains the “best of the best” financial, economic and investment articles to be found
- Presented in an “edited excerpts” format to provide brevity & clarity to ensure a fast & easy read
- Don’t waste time searching for articles worth reading. We do it for you!
- Sign up HERE and begin receiving your newsletter starting tomorrow
- You can also follow the “munKNEE” on Facebook
* http://www.streetsmartreport.com/A%20Warning%20For%20Gold%20From%20Inflation,%20The%20Dollar,%20And%20Mining%20Stocks.html
Related Articles:
1. Is Gold’s 13 Year Run Almost Over?
[While] the price of gold has gone up for 12 straight years, and is on pace to make it 13 when this year comes to a close, it seems that despite all of the gold bugs calling for the metal to surge to unbelievable highs, major financial institutions are calling for the gold bubble to finally burst in the coming months. [Let’s examine what they and others have to say.] Words: 450
Gold’s loss of momentum in the past months has predictably brought out calls to short gold. [This article offers] a brief guide to whether you should consider or ignore these [suggestions]. Words: 1184; Charts: 1
3. It’s Time to Seriously Consider SHORTING Gold – Here’s Why
I view the current market weakness in gold, coupled with the pullback in trader positions, as a shorting opportunity which is strong in terms of reward vs. risk. I have come to that conclusion by questioning the assumptions that many make about it, isolating its fundamental drivers and providing a trading recommendation as to where I believe the price is headed in the future. Let me share my analyses with you. (Words: 1440; Charts: 4; Tables: 1)
4. 7 Indications That Gold & Silver Bearishness Most Likely Will Continue
This article looks at 7 reasons why gold and silver should experience further weakness over the days/weeks ahead. (Words: 206; Charts: 5)
At the end of the day the gold price is not a mystery – it’s a proxy for dollar weakness. After spending the previous fall and winter testing new nominal highs above $1,800, future investors may come to view…2012 as the opportunity of the decade. Gold has shown its strength and retreated. While most investors will take that as a signal that the market has topped, some will take advantage of the general trepidation to add to their positions at hundreds of dollars off the highs. Words: 700
What is developing in the markets is not the beginning of another leg down in gold, but a second chance to get positioned for what should be a very profitable intermediate degree rally over the next 2-3 months. [Let me explain further with a number of charts to support my position.] Words: 460
7. What, Me Worry? Not When You Look at These Monthly Gold & Silver Charts
We’ve been surprised at the recent action in the precious metals complex. During the recent correction the shares were showing quite a bit more strength than the metals. Then the shares took a dive below support yet the metals maintained their recent lows! How do we interpret this wild volatility in the relationship between the shares and the metals? Quite often we look at daily and weekly charts. Now is the time to take a look at the monthly charts which can help us get a better read on the larger trends at hand. Words: 636
Our subscription service provides detailed technical analysis of where the price of gold, silver and precious metal stocks are going short term (in the next week or two), intermediate term (within the next 3-6 months) and long term (the ultimate top) in each stage of their respective bull runs. This service comes with detailed charting based on conventional technical analysis and our proprietary fractal analysis based on the ’70s. Below are some of our latest comments and rationale for expected price movements in gold without illustative charts which are only available to subscribers. Words: 1000
9. Short-term Interest Rates Are Behind the Price Of Gold – Here’s Proof!
Some gold bugs say that this is only the beginning and gold will soon break $2,000, then $5,000 and then $10,000 per ounce but the question is, “How can anyone reasonably calculate what the price of gold is?” For stocks, we have all sorts of ratios. Sure, those ratios can be off . . . but at least they’re something. With gold, we have nothing…. [or more correctly, had nothing, until the development of my very own model for doing just that. Let me explain.] Words: 945
10. Is Current Performance Stench of GDX About to Turn Into That of Perfume?
GDX has underperformed the S&P 500 by almost 50% in the past 15 months and is down almost 14% in the past 90 days. That being said, could be that it is about to make a move that will turn the present stench into that of perfume.
My previous article on gold & silver went viral with almost 30,000 reads on munKNEE.com alone and continues to be read by hundreds of goldbugs daily. Below is an updated chart and analysis suggesting that gold & silver have further to drop before they go parabolic. Take a look and share it with friends.