Has the secular bull market in gold ended? (Part Two – Bearish arguments for gold)

22 April 2013

Bullish arguments in favour of a continuation of the secular bull market in gold were laid out in this post.

This post will lay out the bear case. But first, some charts to consider and form the backdrop of our discussion. The first set of charts are 3-year weekly charts of gold, silver, and the ETFs GDX (gold miners) and SIL (silver miners).

3 year chart of gold (weekly)

gold22april2013
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Bretton Woods, Gold, and the current monetary system

17 April 2013

In the next post, I intend to describe what I personally deem to be bearish arguments against gold, and make out a case why the secular bull market that began in 2001 probably ended in September 2011. Undoubtedly, there will be many believers in gold who will vehemently disagree. My bullish arguments FOR gold are laid out in this post (but as my next post will explain, I think the bear case outweighs the bull case).

First however, I will need to devote one post to describing a little bit of history to set the context for the discussion. We need to understand how the current monetary system evolved, as well as its flaws.

Post World War II, the Bretton Woods system fixed global exchanged rates to the US dollar, and the USD was in turn pegged to gold at a price of $35 per ounce. The US Federal Reserve guaranteed USD-gold interconvertibility between central banks at this rate, and the free market for gold was naturally tied down by this arrangement.

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Has the secular bull market in gold ended? (Part One – Bullish arguments for gold)

16 April 2013

The honest answer to the above question is “I Don’t Know”. The most I can do is to list out the long-term factors for or against gold, and evaluate the probabilities accordingly.

Factors favouring a continuation of secular bull in gold

1. Central bank money printing

Central banks continue to print money and expand their balance sheets in order to fend off what they perceive as deflationary forces and prop up the economy. There is even talk of the US central bank headed by Ben Bernanke moving to a single mandate — combating unemployment.

While the money printing is not immediately inflationary due to the deleveraging process still underway, the slow velocity of money, and global excess capacity, money printing eventually leads to distorted asset prices, and should ultimately be beneficial for gold as people start to find ways to defend against the depreciation of purchasing power of fiat money.

Many in fact have argued that the current stock market rally especially in the United States has been a result of money printing.

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Gold and silver decisively break multi-year support

16 April 2013

In a previous blog post last month, I ascribed a greater than 50% chance that gold and silver will break down below long term support. This prediction has come to pass.

Take a look at the short and intermediate term charts of gold and silver respectively.

One year (daily) and Three year (weekly) charts of Gold

golddaily16april2013

goldweekly16april2013

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Long term gold and silver charts revisited

02 March 2013

Let us revisit the long term charts of gold and silver. I contend that since the early stages of the secular bull market, both precious metals clearly exhibited an alternating pattern of 6-9 month upswings followed by 15-18 month consolidation phases.

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Gold and Silver — At critical support

01 March 2013

Gold and silver are at critical multi-month support. Attached below are the 3-Year Weekly charts for both the gold and silver spot price. As can be seen from the charts, gold is near the critical support band of 1540-1560 per ounce, whilst silver is near the critical support band of 27-28 per ounce.

gold01march2013

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