Gold - Eerie Pattern Repetition Revisited

| About: SPDR Gold (GLD)

By Pater Tenebrarum

Gold Continues to Mimic the 1970s

Ask and ye shall receive… we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: "Gold and Gold Stocks - It Gets Even More Interesting" for the details). We are hereby delivering on that promise.

It is actually interesting to revisit both past articles speculating about a potential gold bottom that turned out to be correct (those would be the many articles we penned on the topic from August 2015 onward) as well as those that turned out to be incorrect (which would include a number of articles written in late 2014. Although they managed to catch a playable rally in timely fashion, it ultimately turned out to be a bear market rally).

If you do that, you will notice how much more careful we got over time - even when we definitely saw good potential for at least a short-term move, we always stressed that the turn might still not be at hand. Apart from such psychological considerations, it is of course also well worth comparing the fundamental, technical and sentiment signals we have tracked over time. We believe all of this has educational value that may be helpful in a great many future market scenarios, and not necessarily only in the gold market.

You can either make the effort to search the archive, or wait about a week - we will on occasion put together a reading list with the links to the most interesting articles and post it some time in the next week.

Let's move on to our updated comparison chart though - here it is:

Click to enlarge

The 2011-2015 bear market compared to the 1974-1976 bear market (stretched by a factor of approx. 2.1x). The peaks and troughs are aligned and as you can see, since the late 2015 low, the patterns actually continue to mimic each other.

Needless to say, this is actually quite eerie. However, although the fundamental backdrop of the 1970s was obviously different from today's, there are actually many parallels applicable to the gold market, as our good friends Ronnie Stoeferle and Mark Valek have pointed out in this year's "In Gold We Trust" report.

Indeed, if one reads mainstream press articles written near the bottom of the 74-76 bear market and compares them to articles written near the 2015 low, it is noteworthy that they are almost without exception making exactly the same arguments! We will try to put together some examples of this as well and post them along with the above mentioned reading list.

Conclusion

It will be very interesting to see if these patterns will continue to track each other this closely in the future. If so, then we are in for a wild ride - an extremely volatile rally (interrupted by often scary corrections), that will ultimately end in a veritable mania and produce incredible gains in the long term. Unfortunately, in this case, we should also expect that the times will get a lot more "interesting" - in the Chinese curse sense.

Charts by Saint Louis Federal Reserve Research