Golds been in a bull market for some time now. Were getting ready for the fun wave.
Gold's Long-Term Secular Bull Market Is Intact
Oct. 23, 2017 11:02 AM
SummaryThe 18-year gold cycle is intact and gold is about to embark on the next leg up.The 9-year gold cycle also indicates a long-term buy signal.The 12-month supply and demand outlook is bullish for the next year.Factors that favor gold today include negative interest rates and gold mining company's reduced operating costs and capital expenditures.
18-Year cycle
The long-term secular bull market in gold is intact and about to embark on the next leg up. This leg is projected to take gold to new all-time highs. Despite several pullbacks, the price has held above the long-term 50-month simple moving average SMA of $1235 for three consecutive months for the first time in 4½ years.
The long-term 18 SMA is at $1270. Closing above the long-term 50 SMA of $1235 has activated a major long-term buy signal and resumption of the secular bull market that started eighteen years ago in 1999.
A head-and-shoulder bottom formation supports the long-term 18 and 50 SMA major long-term buy signal.
9-Year Cycle
The 9-year cycle 18 SMA is also at $1270. Closing above the 50 SMA of $1235 has activated a major long-term buy signal and resumption of the secular bull market that started eighteen years ago in 1999.
12-Month Supply And Demand Outlook
In my last report published on Seeking Alpha, I argued that based on the EMA2 Trade Live Analytics's proprietary Variable Changing Price Momentum Indicator (VC PMI), the long-term trend momentum for gold is bullish with targets of $1386 to $1484. According to my analysis, you can use the extreme above the mean as your target, which is $1386 to $1484 and is the sell 1 and sell 2 levels. We recommend easing out of long positions at the sell 1 and 2 levels as you take profits off the table. If the market closes below $1264, the market momentum changes from bullish to neutral. If that happens, you should cover any bearish positions if you've taken, since the sentiment will change toward levels of $1166 to $1044. The market may not go down to such levels, but a move to $1264 means that you should be alert to the possibility of lower prices.
Factors That Favor Gold, Gold Stocks And Etfs In The Current Environment
According to Sprottetfs.com, gold stocks and ETFs provide investors with access to innovative and unique indices that are designed to outperform passive market cap-weighted offerings.
Negative interest rates have historically been supportive of the price of gold. In Q3 2016, there was $11.6 trillion in negative-yielding bonds.
In response, there has been a significant sentiment shift in favor of gold. ETFs dealing in gold posted significant increases in fund flows with ETFs accounting for an increase of 18.3 million ounces YTD.
Historically in gold bull markets, gold equities have outperformed gold bullion. The ratio of gold equities to gold today is less than half of its historical average.
During the recent gold bear market, gold companies reduced their operating costs and capital expenditures. All-in senior sustaining cash costs have declined 24% from $1,227 per oz. in Q2 2013 to $930 per oz. in Q2 2016.
In a rising gold-price environment, gold stocks have the potential to provide additional returns because:
The value of unmined gold reserves increases, making gold companies more valuable to investors.
The profitability of gold companies can rise exponentially relative to the price increase for gold.
Let’s look at an example of a company producing 1 million ounces of gold a year:
In this illustration, an 18% increase in the price of gold translates into an 80% increase in profitability for the company. The average 24-month return for gold stocks following the market bottom of the last 7 bear markets was 117%.
Conclusion
Based on the data points and information above, we can conclude that the gold market is at the early stages of a potentially powerful upside move. Gold will probably revert back to the average price of $1420, which is the 4½-year target--the halfway point in the 9-year cycle that started in 2008. Closing above $1420 (the equilibrium price or the mean) activates the $1789 to $2293 targets at the extreme above the mean. An initial close below $1264 would neutralize the current uptrend and a second close below $1264 opens the possibility of testing the extreme levels below the mean at $1166 to $1044. Such a downward spike is highly unlikely to happen, but if it does it would create, the best buying opportunity in precious metals in a decade.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
About this article:
Tagged: Macro View,Gold & Precious Metals,Alternative Investing
Includes: SPDR Gold Trust ETF (GLD),IAU,PHYS,SGOL,UGLD,UGL,DGP,GLL,GTU,GLDI,DZZ,OUNZ,DGLD,DGL,DGZ,GYEN,GEUR,GLDW,UBG,GHS,GHE,QGLDX
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