• 368 days Will The ECB Continue To Hike Rates?
  • 369 days Forbes: Aramco Remains Largest Company In The Middle East
  • 370 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 770 days Could Crypto Overtake Traditional Investment?
  • 775 days Americans Still Quitting Jobs At Record Pace
  • 777 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 780 days Is The Dollar Too Strong?
  • 780 days Big Tech Disappoints Investors on Earnings Calls
  • 781 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 783 days China Is Quietly Trying To Distance Itself From Russia
  • 783 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 787 days Crypto Investors Won Big In 2021
  • 787 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 788 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 790 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 791 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 794 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 795 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 795 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 797 days Are NFTs About To Take Over Gaming?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

  1. Home
  2. Markets
  3. Other

Gold Stocks - The Long-term Perspective

Below is an excerpt from a commentary originally posted at www.speculative-investor.com on 29th August, 2010.

Displayed below is a long-term weekly chart of the Barrons Gold Mining Index (BGMI) with a log scale. The chart includes the BGMI's 200-week moving average (in red) and two upward-sloping trend-lines (in green). We've given the trend-lines the same slope to show that the gold sector's current long-term bull market is progressing at roughly the same pace as the long-term bull market that ran from the early 1960s through to 1980. Also, we've labeled points on the two major up-trend lines to illustrate our view that the October-2008 low can be considered to be the equivalent of the January-1970 low.

Barrons Gold Mining Index Since 1960

There are clearly similarities between the first half of the 1960s-1970s bull market and what's happened over the past 10 years, so the BGMI's performance during the 1970s could be a useful model over the years ahead. However, we do not think that today's financial/economic backdrop has much in common with that of the 1970s. Of particular importance, the decade of the 1970s occurred in the midst of a secular expansion of private-sector credit, but it's very likely that we are now two years into a secular contraction of private-sector credit. The contraction of private-sector credit and the downward pressure that this puts on the supply of money could have created a very bearish backdrop for gold, but governments have chosen to offset this deflationary force by aggressively ramping up their own spending/borrowing, with central-bank monetary support. Consequently, there is the possibility (we would say likelihood) of what would otherwise have been a deflationary cleansing process being transformed into an inflationary depression.

Getting back to the BGMI chart, at the beginning of the 1970s there was a very sharp pullback to the long-term trend-line (labeled "2" on the chart). At this stage we are not expecting a repeat of this sharp pullback. There remains a risk that the gold-stock indices will decline to near their February lows within the next two months, but note that a decline of this magnitude would barely register on the above long-term chart.

The above weekly BGMI chart covers the past 40 years, while the following weekly HUI chart zooms in on the past 12. The blue line on the chart is the HUI's 200-week moving average.

The HUI chart reveals that the massive losses of 2008 were fully recouped by December of 2009, and that the HUI has spent all of this year 'chopping' back and forth below its March-2008 and December-2009 peaks. The chart pattern allows for two very different interpretations, one being that a major "double top" was put in place during 2008-2009 and the other being that everything since last December's peak has been a fairly routine intermediate-term correction within the long-term bull market's second major upward leg. We continue to believe that the latter interpretation is correct, because we see no evidence that gold's secular bull market is over and a lot of evidence indicating that it has a long way to go. Our view is that some time within the next 6 months -- it could be this September, or early next year, or some time in between -- the HUI will break decisively above 500, confirming that it has commenced the second intermediate-term advance of its second major upward leg of its long-term bull market.

HUI Gold Bugs Index

 


We aren't offering a free trial subscription at this time, but free samples of our work (excerpts from our regular commentaries) can be viewed at:http://www.speculative-investor.com/new/freesamples.html

 

Back to homepage

Leave a comment

Leave a comment