Precious Metals

Let me start today's post by examining the long term trend in gold. The uptrend in gold started in 2000 when gold was trading at 250$ per ounce and lasted for approximately 11 years. By 2011 when the uptrend ended gold made a high of 1913$.

Since last 5 year gold is correcting and had fallen from the high of 1913 to 1050$ an ounce. If we look at the given chart the entire down move in gold does not look like a decimation but only pull back or a price correction. Hence it is my firm belief that the bull market in gold will continue and we will see new high in gold going forward whenever the bull market resumes. 

Similarly the chart of silver also tells the same story. The bull market in silver started when silver was trading at around 5$ an ounce and lasted for approximately 11 years. The uptrend ended when silver reached 50$ an ounce.  Silver has witnessed a sharper correction compared to gold and the recent lows in silver were made at 14$ an ounce.

Both Gold and silver price structure does not look like decimation but only pull back to correct the excesses of the previous bull market. Once we see price correction and time correction being over a new bull market will emerge in both precious metals. 

In the third chart lets look at the breakout point for Gold. Gold was trading in a downward sliding channel since 2011 (this channel represents price correction in gold). Gold has already broken out of the long term down ward sliding channel at around 1130, but before we declare a final breakout for gold it has to breakout of the second downward sliding channel (which is more about looking the time correction aspect of gold). Breakout from this channel will happen at the level of 1250 and above.

Once gold sustainably breaks above 1250 we will see the resumption of long term bull market which will take gold to 1900$ and may be towards 2400$ in next 5 – 7 years. 

Now lets us examine my past calls on gold. I first went bullish on gold in my post on 14^th September 2013 almost 2.5 years back.  Since then twice I have given bullish call on gold only to see gold taking away my stop losses on 2^nd January 2014 and 13^th January 2015.

If we look at the given chart it shows that gold went down by almost 23.4% since I first became bullish on gold and this fall happened over a period of 2.5 years which means annualized fall of 11.18%.

 So what went wrong?

Both times I tried to preempt the market assuming that gold will break out of the long term downward sliding channel but that did not happen hence all three of my calls hit the stop loss. 

Although the price correction in gold was almost done by then since gold had already fallen form 1900 to 1300 the time correction was not over. Hence gold did not broke the down ward sliding channel and kept on consolidating at those levels for further two years before it finally break out now.

Summary:-

1.       The upmove in gold looks like a no brainer.

2.       Target for gold stays at 1900+  levels and it will surprise everyone on the way up

3.       Once gold breaks and sustains above 1250 there should be no looking back.