Friday, 20 February 2015

1500 plus gold difficult to justify 1430 was a warning

Here ia a chart that I did today after taking a look at the long term action in gold. A sideways stepping out from the steep downtrend of 2012-2013 is now looking clearer, with perhaps a gentle downslope that is parallel to the line drawn between the 2006 high and the 2008 low. 

There is a suggestion that an $119 low is possible in the near future if the recent trend breaks down further.

The action above $1500 in 2011-2012 looks like a bubble top and actually looks ridiculous on this long term chart, not as extreme as in 1980 but very exaggerated.

I remember thinking back in late 2010 when gold made a rolling quadruple top which had its high at $1430 that the price action had changed. I thought that it might be the top and the sharp correction to $1307 in early 2011 might last quite a while and go further The price struggled to get back over $1430 but it broke through and went first to $1577 and then to $1920.

Meanwhile silver corrected from $31 to $26, got back to $31 and screamed to $49 as gold made an intermediate high at $1577, took a crash and went back to a secondary high at $44 as gold hit $1920. The failure of silver to make a new high was a big non-confirmation.

It is interesting that silver and gold topped within days of each other in January 1980 but topped 4 months apart in 2011. I don't know if this signifies anything.

Really there were warnings all over the place so I did not buy anything once gold was over about $1300. Low premiums on semi-numismatic coins such as $20 pieces were also a warning in late 2012 as gold was over $1600, below the high but still very overpriced. This sort of thing happens at a top and it was happening at $300 below the top. 

Looking at it now, the gold market needed a big correction from $1430 in order to be sustainable and stable. Going to $1900 at that stage was madness.

For a look at long term prospects, please see:

dealing with price history from 1971 and possible action out to 2040.

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