A Congested Gold Market Gives Us Buying Time for Gold Shares


On your left is a monthly average price of gold dating back to 1995. This is a continuation of a chart I kept while I was working in the metals and mining division of ING Barings up until 1997.

I like to use an average monthly chart because it smoothes out major shorter-term distortions and provides a more realistic model when modeling for projects because more than likely mining projects will be setting up regular dates for sale of gold along the lines of their gold production schedule.

We saw what now appears to have been gold’s capitulation price during December 2015 when its average plunged to $1,068.14. Time will tell if that is the right call but based on Michael Oliver’s momentum work as well as the work of several other analysts, like Dr. Robert McHugh for example, that is my strongly held (but admittedly not unbiased) viewpoint. Certainly one point of structural strength is the move of the average monthly gold price back above the 20-month average price and now very close to the 40-month average.

Notice how long gold remained in an upper trajectory once the average move above the 20-month average started in 2002.The average gold price “kissed” that average starting in 2002 and bounced off of it numerous times until the 2008-09 crisis when it finally fell below the 40-month average. But that “cleansing” process set the stage then for the next big move—a 134% rise from the financial crisis monthly average low of $758.04 in November 2008 to the October 2011 high of $1,771.38.

While the average monthly gold price topped out in October 2011, it successfully tested the 20-month average three more times before finally plunging not only beneath the 20-month average but also putting a nail into the coffin of the cyclical gold bull market by cutting through the 40-month average like a hot knife through butter.

Our shares were obliterated then by late December 2015 when the average gold price fell to $1,068.14 when the average monthly price for gold that month plummeted $181.28 below the 20-month moving average. But since that December low, the price of gold has risen with one of the biggest increases ever at the start of a new year. Gold’s average price has climbed sharply and since March has risen above the 20-month moving average price and as noted above is now closing in on the 40-month average. With that rise in gold shares, you can see from my Model Portfolio the results for our gold shares below.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.