Stock-Market-Observations

The Long Term Gold Bullion Chart illustrates some of the important cyclical junctures needed to confirm the basic T Theory forecast of a new Gold bull market projected to last until the year 2020. The chart is courtesy of BigCharts.com and the nine-digit number at the upper left is the chart symbol. It can be used to make updated or more detailed charts at their web site. Also note if you click on the chart a larger version will appear in a new pop up window. I am adding the BigCharts.com site to My Links in the left column.

Verification of the projected up trend in the right side of any T, including this relatively new Gold Bullion T, is usually done by reference to moving averages and support levels but I am leaving these refinements out for now. The bigger picture usually provides the better suggestions for generating wealth long term, so my first priority is to look at these very long-term monthly charts for clues that might be helpful.

Looking out into the new year, the most significant pattern, beyond the big Ts projection of a long term bull market, is the rather remarkable sequence of Gold peaks at the points labeled A, B and C. These represent the three key completed peaks in the Gold bear market starting from the very speculative peak over $800/oz in 1980. Because the next key peaks at B and C occurred as lower peaks, T Theory interprets the declining tops sequence as a Cash Build Up Phase as I have noted in the chart.

Within T Theory, this cash build up period defines the left side of all time symmetrical Ts that eventually projects the time matching up trend. For gold the T Theory projection is for a 20 year up trend into 2020 as the time symmetrical match to the 20 year bear market that was completed in 2001. In the months ahead, a significant aspect may be that these descending peaks A, B and C are separated by 8 years and a possible repetition of this spacing could see a Gold Bullion peak in the first quarter of the new year, that is anywhere in the January to March period.

According to basic T Theory concepts the left side of any T (that is 1980 to 2001) is defined time wise by the pattern of descending peaks either in prices, as for this gold plot, or as descending momentum peaks in other long-term equity examples. In either case, confirmation that any new T specifically requires this bear market pattern of descending peaks to be “broken” to the upside, usually by some dramatic upside breakout of the long decline. Technically the upside move must be surprisingly strong, and for this gold picture it must carry significantly above the last descending peak, which for gold, is the 1996 peak, just above $400.

Thus it can be assumed the recent rising trend will continue until Gold can convincingly break above the C peak at $420-ish. This might require a burst of strength to $450 or better to confirm the basic T criteria. Expecting Gold to climb above the 1996 peak, probably in the early part of 2004, is the single most important short-term conclusion to come out of this long-term analysis. In the meantime it is not unusual to see hesitation or dips as preparation to the upside breakout, but they can be bought ahead of the expected breakout.

Of course the main implication of this new T is the suggestion of a sustainable uptrend in gold for a much longer term that is probably suspected even by the most ardent ‘Gold Bug’. Nevertheless three major equity Ts completed their long-term projections very accurately over the last three decades and I am assuming this Gold T will be functioning in a similar manner for many years. Obviously this is bullish for investments that act as ‘stores of value’. Not so obvious is that during long term rises in gold (1966 to1980, for example) equity investments suffered while Gold was doing well.

This is confirmed in T Theory by the fact that the major equity Ts all died out at the recent equity bubble peak and there is no reason to believe any new long-range equity Ts are likely for some years. This therefore places the projected new Gold bull market as the top of the priority list as far as a T ranking is concerned. Unfortunately gold is a volatile and emotional investment that isn’t terribly diversified. Better than average money management skills are needed to keep ones capital growing all the while controlling financial risk and getting a good nights sleep.

Most of us who are gold enthusiasts have invested some modest portion of our assets in gold mining stocks rather than the actual metal plotted here. Judging by correspondence I would say those of us that have rejected US equities as being over-priced and over-owned are typically invested as 10% to 30 % in Gold Mining Stocks, and often using mutual funds to diversify their holdings. The remainder of their financial investments typically are stored in very low volatility income investments (like bonds) that temper the overall volatility of the mix and help make money management fairly straightforward and relatively painless.

My own preference is to shift assets between the gold and bonds by some modest percentage as one anticipates the shorter-term fluctuations. This isn’t always possible to do successfully so the major of the gold investment should stay with the long range T. But, for example, if a short dip occurs in the price of Gold, say to the $385 level in the weeks ahead, I would add say 5% of my total assets to the Gold funds on that reaction.

Why this might happen and how one might work out the technical details will be the subject on my next discussion. Right now I am in the process of writing up reports and closing out computer files for ending 2003. If a correction appears very near term my downside target is $385-ish, but if is delayed the target will rise, perhaps above $400. The only important point to say right now is that a dip is likely before the upside break out occurs and a dip would be a good buying opportunity.

The basis for this expectation is the observation that price of gold rising out of the big T’s center post low in 2001 shows clear indications of sharp dips at roughly 8 month intervals. These cyclical lows are not reliable enough to project low dates. However using a concept which I call T Envelope Theory, I have been able to convert cyclical time to useful price objectives to serve the more practical purposes of money management.

Thanks for checking in. Expect a new update in very early 2004.

Contrary Opinion Warning