Gold Passes A Major Milestone

Tyler Durden's picture

Submitted by Brandon Ferro of Only Prices Matter

Gold Now in a Sustained, Structural Bull Market; On Average, History Suggests ~175% Incremental Upside

The last time we discussed gold on the site was a few weeks back in this post; therein we suggested a break-down in USDZAR was at hand and that should history hold, it would help propel and/or coincide with additional upside in the metal.

However, the above was merely a tactical, nearer-term call.

Strategically, it’s been even longer since we updated our longer-term framework for gold.  In fact, it’s been three months since we did that in this post.  In that May piece we suggested the metal continued to track favorably vs. our bullish expectations, but in the near-term it faced a major test having rallied nearly +25% off its Dec-15 low, a historical demarcation point whereby cyclical retracement rallies were either snuffed out with a resumption of a secular bear beginning afresh, or, the same moves continued higher, indicative of a new secular bull being underway.

Where do we now stand vs. that +25% demarcation point?

As of month-end today, gold is up over 27% from its Dec-15 lows.

This a major milestone – any time gold has managed a move of at least 25% off a major low, it has continued higher every single time with incremental gains ranging from 21%-412%, with the average totaling 175%.

In the chart below I’ve used the vertical, dotted green lines to show any month where gold closed at least 25% off a major low for the first time; the bright green annotations show the incremental upside for the metal until another major peak was put in place following these signals; the red annotations show that gold’s two major head-fake rallies off noteworthy lows – those being the 1993 and initial 1999 lows – never managed to get to +25% off those lows, stalling out just below +24% and +17%, respectively.

In terms of the type of incremental upside scenarios for gold that the chart above outlines, keep in mind the analog I put up in my last and aforementioned gold update post.  That analog showed that vs. history’s other major bubbles (i.e., gold-80; Nikkei-89, NDX-00, Housing-05, etc.), gold’s to-date selling off its 2011 highs had been the strongest move in history at every single post-high weekly trading juncture, looking nothing like the material weakness witnessed in the others coming off their respective highs.  Its rally since bottoming in Dec-15 has only reinforced its differences vs. the others.

Using this comparison, one is left with the fairly ineluctable conclusion that if gold was a “bubble” from 2000 onward as most have claimed, it certainly doesn’t look like its high has yet to be registered.  In that regard, if gold has rallied anywhere from 21%-412% after closing at least +25% off a major low on a monthly basis as it’s doing in July, I am much more inclined to believe that one’s expectation for incremental upside this time around should skew larger, not smaller, as its 2011 highs are a mere ~10% away.

Here’s what the analog looks like now:

As the above occur, the metal is getting ever closer to the $1,375-$1,450 target I suggested it could reach by the second week of August in this post from March, which was an update to an analysis we initially presented in in this February post.

That initial post noted that in rallying ~550 bps in a week where the overall CRB index fell more than 100 bps, gold had registered what amounted to a 99.8th percentile out-performance event in the second week of February.  It went on to show that the few times such wide weekly performance disparities have occurred historically, it effectively always led to material upside in the metal over all forward time-frames.

The tables below show each of the historical signals, their forward returns through +24 mo and the price targets implied for gold coming off of the most recent signal during the week of 2/12/16.

Thus far, with two weeks left until we hit the +6 mo mark at 8/12/16, the +9% return off that early February signal is the lowest and is tied with the forward return off the Sep-08 signal.

The average of all the previous signals at +6 mo is ~15%, suggesting gold reach ~$1,420 as we approach that +6 mo milestone. However, we might want to exclude the Sep-08 signal’s forward returns at the +6 mo mark.  Remember, though gold was in an up-trend, right after this signal gold temporarily crashed ~20% into Nov-08 amid GFC-forced margin call liquidations, thus impairing its returns through the +6 mo mark as rebounded from this aberration of selling.  If we exclude Sep-08, the average +6 mo gain of the others yields ~+17%, implying gold could reach as much as $1,450 in a few weeks.

Thereafter, all but the Mar-80 signal yielded additional, major gains for the metal at the +12 and +24 mo marks.  The average gain across all signals at the +12 mo mark, or as of Feb-17, is +36%, implying gold could reach nearly $1,700 by early next year! Ex the Mar-80 forward return, the average of the others at +12 mo was +47%, implying in excess of $1,800 by Feb-17!

For those that push back on the tables above being a small data set with one noteworthy negative result from Mar-80, let me remind you that the Mar-80 signal came a mere two months off gold’s all-time high follwing what had been a ~4x rally in the previous year; thus, that signal is nothing like the others, including the most recent in Feb-16, whereby gold was coming out of major recent sell-offs and just beginning sustained rallies.  Further, though small, this data set is but one more quiver in a hat bedazzled with other, corroborating quivers that have accumulated over the past year to suggest sustained upside for PMs.

In my view, the accelerated upside the table above posits for gold as we begin to work through August will likely be driven by a break-out from the bullish, descending wedge b/t lines (1) and (2) that it is currently testing the resistance of in the monthly chart below.  Said resistance line (1) runs off the 2011 high and the subsequent late-2012 retracement rally high that closely preceded the major sell-off gold then endured into Dec-15.

Another thing gold increasingly has going for it – something that could further propel accelerated upside in the nearer-term along with the break-down in USDZAR we mentioned a few weeks ago – is the recent advance in CHFUSD, which is very close to breaking out of a bullish descending wedge pattern of its own that has similarly been in place since 2011 like gold’s in the chart above.

Above, note how strong the correlation b/t gold and CHFUSD have been in the pos-GFC world as both act as a sort of proxy for off-the-grid, non-conventional stores of value.  If CHFUSD breaks out soon, expect it to occur alongside fresh gold highs.

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debtor of last resort's picture

How in gods name can one measure gold in currency?

marts321's picture

Simple, in 20 years time gold will be worth infinity USD. boom. measured.

LawsofPhysics's picture

LMFAO!!!!

Very true and very funny in a sad sort of way.  Lead and the means to project it will be worth infinity as well...

"winning"

Stormtrooper's picture

First you have to have a reference to the price of commodities in dollars when the dollar was pegged to gold.  You can get an idea of those prices by downloading the Cole Report in Excel format.  The dollar was pegged at $20.67/ounce from the late 1700's until around 1861.  Then calculate the quantity of commodities that one ounce of gold purchased at that pegged rate.  Two examples:  an ounce of gold would buy about 200 pounds of beef or 225 pounds of bacon.  One ounce of gold today at $1300 will buy about the same so in the range of fair market.  The key is to know the exchange rate between gold and commodities so that we will know how to value gold after fiat dies.  Simple example but a starting point.

wet_nurse's picture

The labour that went into 200 lbs of beef 200 years ago is quite different now though. That way of thinking disregards all productivity gains made since $20 gold. Gold is way under valued.

Stormtrooper's picture

True, and we will need much smarter people than I (the general population) to figure out the true value of commodities vs. gold after the collapse stabilizes and commerce resumes.

Justin Case's picture

Perhaps today the cost of energy, property taxes, employee safey regulations, working conditions, pension, heathcare pkgs, corporate taxes, minimum wage, overtime, paid vacations, sick days, licenses, training, permits, health inspections etc could be factored in. I doubt there were many of the things the Gov'ts have implemented since then.

Slomotrainwreck's picture

You must understand gold grams. Once you have your bank card balance with say 50 gold grams of credit, you go shopping. A loaf of bread might be 0.013 grams. swipe your card and the bank deducts that from your gold account while the store adds that many grams to it's gold account. If you want to buy gold, good luck. You need to work for that.

There will be pleny of online sites that compare prices of goods just like your Local Gasoline app shows you the best gas price in the area.

Also the commodity market will be a true source of prices at the wholesale markets.

We the folks don't need the FED or any such corporation to tell us what the real money is worth.

shining one's picture

The whole thing is a false economy. Inflation is a hidden tax. Who drives inflation ? The oil market. Now that oil is low again they can start a new round of inflating.

CorporateCongress's picture

You need it to know how many ounces you can buy this week. Longer term it measures the depreciation of fiat... Not much more to it

beemasters's picture

"How in gods name...."

Funny you should mention god. Just for fun, an author Zecharia Sitchin theorized that 'god' created "humans" to be gold miners on planet earth.
Well, that probably explains our uncanny inherent attraction to the yellow metal?? :)

From Wiki:
"According to Sitchin, Nibiru (called "the twelfth planet" because, Sitchin claimed, the Sumerians' gods-given conception of the Solar System counted all eight planets, plus Pluto, the Sun and the Moon) was the home of a technologically advanced human-like extraterrestrial race called the Anunnaki in Sumerian myth, who Sitchin states are called the Nephilim in Genesis. He wrote that they evolved after Nibiru entered the solar system, and they first arrived on Earth probably 450,000 years ago, looking for minerals, especially gold, which they found and mined in Africa. Sitchin states that these "gods" were the rank-and-file workers of the colonial expedition to Earth from planet Nibiru.

Sitchin wrote that Enki suggested that to relieve the Anunnaki, who had mutinied over their dissatisfaction with their working conditions, that primitive workers (Homo sapiens) be created by genetic engineering as slaves to replace them in the gold mines by crossing extraterrestrial genes with those of Homo erectus. According to Sitchin, ancient inscriptions report that the human civilization in Sumer, Mesopotamia, was set up under the guidance of these "gods", and human kingship was inaugurated to provide intermediaries between mankind and the Anunnaki (creating the "divine right of kings" doctrine). Sitchin believes that fallout from nuclear weapons, used during a war between factions of the extraterrestrials, is the "evil wind" described in the Lament for Ur that destroyed Ur around 2000 BC. Sitchin states the exact year is 2024 BC. Sitchin says that his research coincides with many biblical texts, and that biblical texts come originally from Sumerian writings."

Kirk2NCC1701's picture

The same way you measure other assets (Stocks, RE):  Relative to price/performance in the last 5 years.

Gold is where it was 2-3 years ago.  It still has a LONG way to go to get to the levels of 4-5 years ago.  If I compare that to the price of my house 4-5 years ago, then RE is looking a LOT better.

Hence... DIVERSIFY, MF'er!  Or feel the consequences of being a 1-asset idiot.

Montana Cowboy's picture

That's why we measure it in Troy ounces.

That's also why you can't lose - because you will never lose ounces.

firefightergr's picture

And water and land and human labour and....

Grave's picture

its called gold/bitcoin parity

both have known, finite supply and cannot be fraudulently created out-of-thin-air like debtfiat, but bitcoin has orders of magnitude better granularity which is a key requirement for modern civilization.

purpose of bitcoin is to escape the system of neo-feudalism-through-usury that exists via fractional reserve debtfiat currencies

its got censorship resistance, finite money supply, cryptographically secured ownership, mathematically provable consensus (consensus is the shared perspective that emerges from a freedom of choice between participating parties. bitcoin unilaterally aligns trust)

for the sake of simplicity numbers rounded up:

total bitcoin supply: 21 million
total gold supply: 210 000 tonnes

that gives us ratio of 100 btc per 1 tonne of gold
or 1 bitcoin = 10 kilograms of gold = 400 000 usd
(assuming 40 usd/gram price)
for medieval people - 10 kilograms is about 352 ounces

check this out
2010: 1 bitcoin = 0.004 usd
2016: 1 usd = 0.001 bitcoin
and its only the beginning,
welcome to the future :D

Seasmoke's picture

Soon It will only matter how many grams and ounces you have !!!!

redacted's picture

If the presidential, congressional and bankster insiders are in on it (paper), it will go up. If not, prepare for another monkey hammer no matter what history has shown.

Justin Case's picture

They appear to have been neutered by the SGE and now TOCOM. If gold is cheaper in NY then arbitrage levels it back out with gold leaving the west. Remember, SGE trades real gold, not paper, so the buyers on NY out of Shanghai stand for delivery. If the delivery fails then the NY paper price will becomes irrevent to the price of real gold.True price dicovery will move to SGE and TOCOM for true price discovery.

From what I've seen so far in this bull market, is the monkeys just rattle it for aa couple hours and it's back to where it was prior to the attack. I wouldn't wait for a big take down to buy. I just don't see it happening.

In what appears to be a strategy designed to keep their financial system afloat when fiat currencies around the world collapse under the strain of trillions in quantitatively eased debt, the Tokyo Commodity Exchange (TOCOM) has now shifted their operations so that all trade settlements can be completed in physical gold.

The move follows the opening of the Shanghai Gold Exchange (SGE), which is the East’s answer to decades of manipulated precious metals prices by a concentration of inside players. It’s an open secret that western central banks and cooperating financial institutions have controlled the price of gold for years. The opening of the SGE and Japan’s TOCOM shift should be a clear signal that eastern governments like China, Japan and Russia are no longer willing to play a rigged game and that they are preparing to allow gold to be freely exchanged on the open market in its physical form.

redacted's picture

good points and you could be right....watching metals the last few years may have jaded me

emersonreturn's picture

i'd like to believe, & yes think SGE is distanced enough to operate somewhat independently, but japan?  whatsoever happens in japan has been decided in london, ny.  perhaps it's one way TPTB are moving east.

cognitive dissident's picture

nice, succinct summary of the current dynamics i place with regard to the gold price. Many here are too cynical (and jaded, as another admitted) to believe gold is anything but manipulated to where the evil-doers want it... I would say that upon the April 20th opening of the SGE and the subsequent global reaction to the Brexit vote told us quite a bit more about how gold (and silver) will trade going forward. Charts be damned, I know, but if anyone can show me a prettier breakout in Au/Ag than the one we witnessed in mid 2016 I'd love to see it.

GUS100CORRINA's picture

WE ARE HEADED FOR A CRISIS OF EPIC PROPORTIONS .... THESE SOBs KNOW IT ... I SAW A PRESENTATION USING A CUBE COMPARING WORLD GDP VALUES WITH VALUE OF ALL GOLD EVER PRODUCED. BASED ON THAT ASSESSMENT, GOLD WOULD BE 12,000 DOLLARS AN OUNCE AT A MINIMUM. 

IF WE CONVERT IT TO PRINTED AND ELECTRONIC CURRENCY, THEN WE ARE TALKING $50,000+ OR HIGHER PER OUNCE.

TRULY SCARY STUFF WHEN ONE THINKS ABOUT IT!!!

AS STEVE WYNN SAID IN A RECENT POST, THE REAL PROBLEM WILL BE WHEELBARROWS OF MONEY, ie., HYPERINFLATION

WE MAY SEE  THIS SCENARIO THIS YEAR.

 

cpnscarlet's picture

From your mouth to John Williams (Shadowstats) ear. I will feel very sorry for him if 2016 ends without any strong inflation. That will maks him wrong along with alot of other PM pundits. And it will only leave Armstrong as the last man standing to see if he's wrong too.

Consuelo's picture

 

 

"History Suggests"...

 

Stop.  Right.  There.

 

There is 'history'.   And then there is the Exchange Stabilzation Fund.   And aircraft carriers.   And declarations of 'currency manipulator'.  And  finally, ~30,000-odd tonnes.   

One is a footnote to the way episodes progressed in an 'unmanaged' global market.

The other is the way things actually Are, and will Remain until China decides otherwise.

LawsofPhysics's picture

LOL!!!  Yeah sure, go ahead motherfuckers, tie that Yuan to gold!!!!

The Chinese have no interest in being transparent, period. The fuckers invented paper money for fuck's sake.

Kaiser Sousa's picture

posted by some clueless paper asset braggart yesterday...

"HEhe :) Also think many here wasted money buying precious metals while they were in a bear market... listening to clowns like Peter Schiff in the process..."

yeah - right.

Mr. Schmilkies's picture

charts, farts, what do the astrologers forecast for the shiny, that's what I want to know, can you please post that ZH?  I'm sure astrologers are just as accurate as The Great Charts. 

Kantaka's picture

Here is your astrological forecast for the shiny: It is like the sun, it will keep on shining, beautiful and radiant as ever.

Chuck DeBongo's picture

To be honest, these kinds of analyses are useless (to a large degree). Many (if not, all) of the talking heads whom ZH quote agree that the precious metals market is rigged. You'll get no argument from me about that, because I believe there is strong evidence to suggest that (I'll talk about that later). Which is what makes these types of articles useless; because how valid can this analysis be if the market is rigged (as they truly believe)? The market will go wherever the riggers want it to. For example, I read the other day about how scientists have created an alloy of titanium and gold to create a metal which is compatible with living tissue that can be used for hip-replacements and other similar operations but last 4 times tougher than titanium alone (Source: http://www.bbc.co.uk/news/science-environment-36855705). Now news like that should have sent gold prices higher as it now has new application. But it was only financial news (interest rates, government policy, etc) which drove prices higher. While not proof positive, I believe this goes some way to show how rigged this market is.

 

My point is this, we've all bought precious metals as a form of insurance if everything goes mental. Nothing wrong with that; we're all adults and we all stand by our decisions. But if you've believe these analyses have any value, then I believe, you've bought PM's for the wrong reason. You're just a speculator and no better than those monkeys in suits on Wall Street/City of London.

 

Sorry, bit of a ramble! Best wishes from the UK. :O)

Justin Case's picture

Rigging is not going to stop the natural direction the metal wants to go. Rigging is temporary. The price of gold or silver always finds it's own level. In 10 years it'll be higher, in 20 years it'll be higher. I bought in 1999 at $284 and still hold it. So they can rig all they want, it's just really short term in nature. If they could control it and the price is too low to mine it, there will be accute shortages and that will drive true price discovery. SGE has real metal and when there is demad for real metal the price will be what ever real metal costs, not certificate. They're like currency. So far it has a value as a medium of exchange but it could lose that value. It's just fiat paper and the intrinsic value is really zero. Gold will never go to zero. Never has in 5000 years, and to me that's a fairly good track record, cause I won't be holding it that long.

Miss Expectations's picture

Makes me want to take the boat out.

Latitude25's picture

TA is worthless in totally manipulated markets.

sessinpo's picture

TA is part of what got me into PMs at the beginning of the year after being bearish PMs for years on ZH since the last major peak. That useless TA has me currently in a profitable position.

TA is still bullish long term.

Additionally, we are seeing something that is different. The PM markets have bsically been stable to upward since the end of last year even with any type of manipulation. Once in a while, but rarely, I mention something I call hidden messages in the market. That is one of them. Commericals and manipulators are having a harder time doing what they have in the past.

As mentioned, we had dramatic import increase of swiss gold. And there are indications that there are new buyers intering the market with TOCOM now settling in gold.

And very few people have mentioned that trumps rhetoric involving NATO is very bearish for the dollar. Inn fact it may kill the dollar so those wanting a reset may finally get one. If so, we are not just talking about a simple bear market that central banks can print their way out of.

Justin Case's picture

I have to disagree with that conclusion. The manipulation is just a blip on the chart and longer term you can find direction. RSI and MACD are good indicators and they work for me.

Just hard to make a killing when I wait for these monkeys to take the sledge hammer to the price and then in a couple of hours it recovers. It's like that whack a mole. What happened on Friday, options expiry. Big boo ha about positions ready to hammer gold. (crickets chirping)

By March I knew something was dirrerent in this bull market. I have think that the SGE is having a profound effect on the direction the metal really wants to go. NIRP in Japan has pushed the population to buy gold. They went after buying safes and private storage facilities. Hard to get a safe in Japan. Demand is extremely high. Also the mention of aeroplane money has people running for gold. They are at peak currency destruction. They will also issue perpetual bonds, no interest and no maturity date. So it is my opinon that the people are doing the right thing by parting with currency and buying money.

We can expect a similar method of the FED to juice the economy, like the big rigs using the ether injection system when they need to over take quickly on the highway. Something eventually is going to give.

Xatos's picture

But... what about silver? 

 

:(

83_vf_1100_c's picture

  Silver is even better. Unless you have to run with it, that shit gets heavy and so is ammo and guns and food stocks so running is a last resort. Who wants to die tired?

  I hate buying on the way up but...

SunRise's picture

On the way up is definitely better than buying anything on the way down!

Shed Boy's picture

Except for one little thing.....somebody decides the price. Nice charts, nice history lesson, but the market is totally rigged and the price no longer reflects supply/demand or natural price discovery.

83_vf_1100_c's picture

  Truth but trading pieces of green paper for shiny feels like a pretty good deal. Variations of fiat are born and die on a long enough timeline but the precious endures.

vega113's picture

Yeah, what is the point of historical analyzis if the pricess are rigged? 175% or whatever... The price of gold depends on what TPTB will do or fail to do with it. 

o r c k's picture

The PM's would be sky high and still rising if not for the criminal manipulation. Every individual on Earth that is associated with this crime needs to know that their names are all taken and a prison cell is in their future. If they're very lucky.

directaction's picture

One ounce of gold represents about one month of labor for an average worker. By that measure it should be around $2,000 an ounce. Unless you're a worker in India or China or some such third world dump where an ounce could be a year of pay.

Davy Crockett's picture

Where the hell do you get that an ounce of gold represents one month of labor for an average worker?

Roman Soldiers under Julius Caeser (he gave them a big raise) were getting 225 deniarii per year  Each denarius was 1/10 ounce of silver, so a years wage for a well paid roman soldier was 23 ounces of silver per year.  A private in the US Army with less than 2 years experience, gets $18.8K per year, not including bonuses, allowences, and other benefits.  So if we were on a silver standard, using annual pay for a soldier as a benchmark, would put an ounce of silver at $18,800/23ounces = $817/ounce.

If the Gold/Silver Ratio we have today of 66:1, that would put an ounce of gold at $49,000. If we use the historical Gold/Silver Ratio of 15:1, that would put an ounce of gold at $12,255

 

directaction's picture

Half of Americans get by with less than $10/hr, or about one OZ of gold per month at $1,400/oz. Just like the Army private.
I'm not sure about the Sumerian, Egyptian, Greek. Roman Empire or the prior period of assorted primitive Stone Age cultures, but throughout much US history, until 1932, gold was set at $20.00/oz, equal in value to twenty silver ounce dollar coins. For many generations, a dollar was the standard for one day's pay, although it could be less (farmworkers) or more (Ford assembly line) depending on skill level and experience. This was typical throughout Europe and the British Empire for several hundred years,until the Great Depression [although the compensation for non-British (Indians, Malays, etc ...) was considerably less in most cases].

Latitude25's picture

It only matters what you can buy with gold.  Suppose that gold goes to $600 and houses drop to $10k.  During the depression gold was at $20 and you could buy a house for $100.

cpnscarlet's picture

"5 Ounce House". I like it. That's what I'll call my new ranch.

Justin Case's picture

and a days wage was 10 cents picking apples if you were lucky enough to be chosen.

Saw a Duesenberg Model J in a photo my brother had, with a sign on the door showing $10.00 with a line through it and underneath that it had $5.00.

I've searched on line for that picture for years and never found it . I don't know if he kept it.