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John Hampson
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John Hampson, UK, Self-Taught Global Macro Trader Since 2004, Website: www.solarcycles.net
  • Gold Secular Bull Phase 3 Mania 2011-2013 0 comments
    May 23, 2011 7:02 AM
     
    I propose that the third and final phase of gold's secular bull since 2000 has begun in early 2011 and will end in 2013. I suggest that this third phase, a popular and parabolic mania, was announced by both silver's mega move January to April 2011 and the US Dollar's break beneath long term rising support, and will proceed to conclusion in a similar way to the last secular gold bull of the 1970s.
     

     

     

    Source: Zealllc

     
     
     
    Source: PFS Group 
     
    Gold will finally enter genuine bubble territory and conclude in a manner similar to previous asset manias.

     
    For a deeper understanding of forecasting the gold secular bull to end around 2013, please read my previous articles:
     
    End Of The Secular Commodities Bull (March 7th)
    Solar Activity And The Financial Markets, Parts I and II (March 30th, April 4th)
     
     
    Let's now look near term.
     
    Currently, gold open interest is at a level on par with late January 2011 and late July 2010, the last two significant lows for gold.
     
     
    Source: Biiwii
     
    And gold has just broken out from its recent consolidation range.
     

     
    The gold Hulbert sentiment indicator fell to just 7% in early May, a historic contrarian buy range, and excesively bullish sentiment has now truly washed out against silver. However, I believe silver needs more time to consolidate following its parabolic blow-off, so expect gold to outperform for a period.
     
     
    Source: Sentimentrader.com
     
    The PFS Group long term gold indicator is bullish as of early 2011.
     
     
    Underlying Source: PFS Group
     
    I previously noted that the 200EMA has supported the secular gold bull to date (see first chart above) and is currently at $1400, which I believe would offer ultimate support for any consolidation move down. However, I believe the COT and sentiment readings together with the recent range break out for gold mean that we may be looking at a new leg up in gold (even if stocks and commodities generally take a mid-year breather), which means the recent bounce at $1462 would be the low.
     
    This idea may also gain strength should the US Dollar stall soon at the backtest of its long term rising support break - around 77.5 on the USD index. Such a stalling may occur if the European debt issues are once again kicked further down the road whilst Euroland interest rate rises and increasing rate differential over the US return to the fore. But as shown in the third chart above, US Dollar weakness is not necessary for gold to advance, whilst real interest rates remain negative.
     
    If I am right that we have entered the final phase of the gold secular bull market then the dynamic of this phase means that there will be little opportunity to time the market. What appears to be potential headwinds for commodities currently (potential economic slowdown and debt issues re-emerging) may well be spun into tailwinds for gold (low rates and stimulus to extend and gold perceived as a safehaven).
     
    The biggest gains of the secular bull will be made in this final phase 3. Summarising the above, I believe the question needs to be asked now, not later: do I have enough money in gold?


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long gold
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