BALTIMORE, MD -- Since topping off at over $725 an ounce in mid-May, gold prices have slugged along bouncing between $575 and $650 leaving the overanxious investors among us sweating the proverbial bullets.
But the truth is, this sideways trend doesn't present a problem to us as investors or to the overall gold bull market. Fact is, what we've seen over the past eight months is simply a healthy consolidation of the market. Now, there's no way of predicting just how long this consolidation will last. But we can infer that once a base is established and prices break through key resistance levels, gold is likely to skyrocket - almost certainly over the $1,000 mark.
Let's take a look at a few more charts.
The first shows the price increase between 2001, the birth of the current bull, and the recent peak in mid-May.
It's a beautiful chart and one that we've seen many times before.
But here's another one that we should be interested in as well. This chart shows the first leg-up of the legendary gold bull market that took place in the 70s.
Now, I don't want to compare the two markets side by side. There are too many conditions surrounding the two, and dynamics factoring in, that are dissimilar. Rather, I want to take a look at some of the behaviors of the great bull of the 70s with you today in order to get a better idea of what we can expect from the remaining life in the current bull market.
The first, and most noticeable, difference we see in the two charts above is the amount of market volatility. The 70s bull weathered two obvious and harsh corrections during its early stages of life where gold prices shed over 25% each round. This is very different from the bull of today, which has pulled prices on a relatively smooth uphill journey.
What the chart from the 70s shows us is that corrections should not only be expected, but also that rallies eventually prevail over even the cruelest of corrections during a bull market. This is very assuring, especially during times of weakness, and should allow us to sleep a little better at night. So don't worry about the corrections. They happen.
Another difference between the two is the percentage gain experienced during the first leg-up. The chart from the early 70s shows gold's advance from about $35 an ounce to nearly $200. It was a 470%+ gain. Gold's run from the Spring of 2001 to May 2006, the top of the recent market, has only pushed prices some 225%, less than half the gain compared to the first leg of the 70s bull. It's also important to note that the gains made between 1971 and 1975 took place over a shorter period of time - 12 month less to be exact. This may suggest that the current gold bull market, already 5+ years old, isn't yet finished with its first leg-up. So we could still see higher short-term gains.
Now let's look at the remaining five years of the disco-era market.
It's very different from the first half. What we see here is four entire years of stagnate prices. Despite popular belief, the secular gold bull market of the 70s wasn't all action. Many investors forget this. But once gold prices broke out over the $200 range in 1979, they went hyper-ballistic, increasing about 325% in 12 months. If - and this is a big "if" - we see the exact same action over the next five years, we could see gold prices north of $2,500 an ounce, well above the inflation-adjusted high of about $2,100.
This, of course, is just speculation. What I can say for sure is that the secular gold bull market of today will have its own personality and will unfold differently than its predecessor of the 70s leaving its own unique mark in history.
But the bottom line here is this: If history can be used as any gauge, gold prices are still poised for some big gains. And as investors we need to be there to harvest the fruits.
I'll leave you today with a look and the entire bull market of the 1970s.
Have a good weekend,
Luke Burgess
GoldWorld.com
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