I’ve been predicting, since early 2016, that gold had hit a major bottom in late 2015 at $1,060 and should have a bear market rally towards $1,375 – $1,428 before the next major crash, when deflationary trends set in.
Remember: Gold is an inflation hedge, not a deflation hedge – and, to a lesser degree, a crisis hedge.
The worst financial crisis we’ve had since the early 1930s crash and the financial meltdown was in the latter half of 2008. How did gold do then? It was down 33%, with silver down 50%… while the good old U.S. dollar went up 27% (Treasury bonds also did very well).
Gold bugs would have predicted the opposite…
Look, I respect many gold bugs. They have a strong antenna for financial crises. The problem is, not every financial crisis is the same. A deflationary crisis like the 1930s is different than an inflationary one like the 1970s.
The gold bugs keep saying that the U.S. dollar has been crashing.
It’s been up to as high as 104, or 46%, since its long-term bottom of 71 in January 2008. And it was still up 24% at the worst of the last major correction, falling down to 88.
Now it’s breaking out of the last near one and a half year correction with a two-month trading range between 88 and 90, and a breakout above the downward top trend line.
I think the dollar is going up towards at least 120 in the next year or so…
But, if this rally continues nearer term, as it should, it will be a headwind for gold and commodities, including oil.
Gold has been struggling to break through the resistance level around $1,375 in the last seven months. As much as I thought it could go as high as $1,428 or so, this could be it.
Look at this upward-trending triangle pattern that just can’t seem to break the past bear market rally highs at $1,375, no matter how many times it tries…
If gold does break out, that would be bullish.
But, if it can’t breakout in the weeks or months ahead, and if it breaks below the bottom trend-line around $1,270 nearer term, and rising ahead, that would be bearish.
My next target for gold is in the $650 to $750 area, or a near 50% crash. That was its low during the late 2008 crash. The ultimate target could even be lower, near gold’s bubble origin around $400 to $450, which is where it was back in 2005. But given that gold has not crashed as much as most commodities and metals, it’s possible a low could be set near $700.
We’ll judge that later.
Remember, gold was a bubble, even greater than stocks. It went up eight times between late 2001 and late 2011, and nearly five times between late 2005 and late 2011.
At this point, I wouldn’t even think about buying gold until it reached at least the $700 area. If it gets as low as $400 an ounce, I’d load up the wagons!
That could be a great gift to your kids and grandkids.
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