Keeping Gold’s Recent Decline in Perspective

Michael Oliver, author of Momentum and Structural Analysis, has been enormously helpful to me. His work, not only in precious metals but in every market segment, provides a longer term perspective that accurately places investors on the right side of a market longer term. During gold bull markets gold stock indices raise 6 or 7 fold over several years. Then in a matter of a few months, they come crashing down by 80%.  I’m confident Michael’s work can help us exit before the next major decline. In Dec. 2011 he warned to “exit” if gold fell below $1,610 by month end and then in February 2016 to “buy” at $1,140.  On days when gold is smacked down, it is important to keep in mind that we are still in the early stages of a major gold bull market. The following article written for MSA subscribers demonstrates that a significant gold bull market remains intact.

Gold annual momentum

We usually reference the 36-mo. avg. oscillator of gold and silver when looking at annual momentum. But here we reference the 3-yr. avg. momentum. It offers its own slightly different vista and some pivotal levels.

 When we look back at the price action in 2016 through 2018 we see repeated peaks between $1360 and $1370. Why did gold halt there? When we reference 3-yr. avg. momentum we see why. 

If we plot a line through momentum reaction lows from 2003 to 2009 we have a fairly clear horizontal “floor.” That level was broken below on the opening of 2013. So in 2016, 2017 and 2018 the rally highs repeatedly bumped that prior momentum floor—which was then acting as resistance. This past summer took out that pivotal level. And that breakout was a second major buy signal. The first occurred in early February 2016 (arrow). 

Right now, annual momentum has only freshly broken through that fifteen year wide structure just above the +10% level (10% above the 3-yr. avg.) Readings are not overbought whatsoever on this long-term momentum chart. 

One can perhaps begin to apply the term “long-term overbought” when price reaches 60% over the 3-yr. avg. Upside readings routinely achieved +60% from 2006 to 2010. And in 2011, in a final push, they achieved 80% over the mean. Current readings are congested either side of 20% over the zero line. Next year with an anticipated rise in the 3-yr. avg. from $1245.80 to $1329 that means that 60% over will be $2126 and 80% over equates to $2392. No, those are not necessarily any sort of structural targets or barriers. But they might be considered a high oscillator level — if we assume that the upper readings of the last bull trend are perhaps some sort of restraint. Fundamentals will determine that issue. 

From summer 2016 to summer 2019 momentum action set up another horizontal structure with peak monthly closes at 10% over the zero line/36-mo. avg. We do not want to see a monthly close at 9.5% over the zero line. This month that means not at or below $1415.3. Next month with an upward adjustment in the 36-mos. avg. we do not want to see a monthly close at $1423. For now what we have is congestive price action with lows still 3% to 4% above the top end of that prior three year wide momentum range. (Note: On Nov. 7, Michael said that as a gold bull he doesn’t want to see a price below $1,415.30 by the end of November.) 

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.