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Gold Seeking Out The Fractal Path

|Includes: SPDR Gold Trust ETF (GLD)

One and a half years ago, the fractal science as practiced by David Nichols made the bold prediction that gold, then in a slump for over a year, was going into what he termed a "parabolic" climb" frenetically topping around February 2011.  With the conventional wisdom, even among gold bulls, being a much slower, steady march upward over many years, this prediction had few believers (other than me - see my blog article Is Gold At A Fractal Moment from July '09).  So what has transpired since then ?

The fractal month counts are shown in the 64 month fractal with the pivotal month 45 being projected as the critical turn point. Gold's actual path since this projection was made is scaled onto the mid '09 end point of the monthly bar chart.

Month 45 was indeed the swing point into the climb we are seeing.  Gold is clearly seeking out the fractal path, but just what is that path ?  We loosely call it "parabolic", but is it a math curve ?  I tried fitting actual exponential curves to what gold is doing and to the path Nichols drew.  About the best I came up with is the tan line shown, which doesn't match very well.

The fractal path for this or any other pattern is not a math curve, but rather a time sequence chain of turn points dictated by month counting.  But what is loosely called the parabola fractal has what an exponential graph has - an asymptote, a point on the x axis where the climb approaches a vertical line.  In the case of our gold chart, the "asymptote" is a point in time.

This point in time could be thought of as the point of agreement among investors on an issue, some big approaching, increasingly obvious thing profoundly effecting the price of something.  As we move forward in time to the asymptote, there is debate and bull/bear argument.  But the bulls convert the bears "geometrically" as the passage of time makes the bull case much clearer.  This is why you must have sentiment division along a climb for it to proceed - the wall of worry.  The bull conversion rate "goes exponential" as time feeds us enough pieces of the puzzle to allow the picture to quickly come together.

This point in time doesn't coincide with the arrival of whatever big thing is being debated.  It's always well before that point in time.  The market figures it out in advance.  For example, the '70s gold bull was all about the approach of the awful stagflation economy.  Gold's parabolic asymptote was the end of 1979, but the mess it saw coming came in force years later, along about 1982.  Reagan's "misery index" of the November 1980 presidential campaign lingered on to 1983.  But you should have sold all your gold years earlier.  When?  Only geometry will tell you.

The departure from the fractal path coming up soon probably won't be a return to cheap gold.  See my article The 64 Month Bull Market Fractal. It will likely be similar to oil's fractal which ended in 2008 - but hopefully without the systemic failure drama.  Oil's parabola fractal is over, but cheap oil is not returning.  Boone Pickens was just on CNBC this morning reminding us that his prediction for $85 at year end has happened, and he sees $90-$95 average for next year with rallies well into triple digits depending on supply problems.  After a big swoon off the parabola's end, which you will want to avoid, gold's bull market, as well as the commodity bull in general, will likely continue for years.  Just not in this particular fractal path.

The gold bull market of the 70's was about economic problems, which went away fairly quickly.  And gold got pretty cheap again.  Our current gold bull market is about a monstrous mountain of debt, and gold as an alternative currency.  This problem isn't going away very quickly.  Gold will stay high and possibly make new highs, post parabola, as long as an alternative currency is on the investor table.