Once Again, Is The Gold Bull Market Over? And, What If It Isn't?

First, I don't see any fundamental reason to think the gold bull market is over. Here's the bullish fundamentals that come immediately to mind:

• Nearly global negative real-interest rates - bullish for gold as there is no loss of "interest" from holding the metal.
• Nearly global intentional dilution of the currencies that compete with gold (US dollar, Euro, Japanese Yen, Chinese Yuan...).
• Unpayable government debt and commitments that are often "defaulted" on by inflating the debt away.
• Central bank gold buying.
• No substantial growth in gold-mine production.
• A global financial system that is inherently unstable and could collapse.
• The growing use of gold as the International means of payment for nation-states excommunicated from the Western Banking system (Iran, Libya, Venzuela, etc.).
• A continued falling of mined gold ore-grade with risining mining input costs (oil, steel, labor, government taxes, royalties, etc.).

What am I missing? Has anything fundamentally changed to end the gold bull market?

Of course, its quite possible to misjudge the fundamentals (as I did with base-metals in 2008), so let's take a peek at the monthly gold chart to see if anything has really changed.

Here's some observations:

• The moving averages indicate that the gold bull market has not broken and that the 2011 correction is not as grave as the 2008 financial crisis. Until the 24-moth moving average is broken (at least), there's not strong technical reason to think that the bull-market is broken.
• The 19-month rate of change (top panel) confirms that the 2011 correction is not as significant as the 2008 financial crisis in that the rate of change is higher than the depths of the 2008 financial crisis. The 19-month duration was chosen as the minimum duration that remained above zero thruout the 2008 crisis.
• The 12-month rate-of-change (2nd from top) is similar to the 19-month rate of change in that the 2011 correction is not as severe (still positive) compared to the 2008 crisis.
• The RSI is similar to the moving averages.
• CONCLUSION: The 2011 correction is not as severe as the 2008 global financial crisis and the 2008 crisis did not end the bull market. Therefore, the evidence weighs in favor of the gold bull market not being over.

Now, if its not over what can we expect, going forward? That's where the arrows above come in:

• Red arrows identify years ending with significantly less than double-digit gains (NOTE: years ended with negative growth thruout the bull market and, unless the Banksters pull a fast one over the next week, 2012 will end with positive, but less than double-digit gains.
• Green arrows identify the year-ends following-red arrows. They provide a historical basis for estimating the next year's gold price action if what follows this year-end is similar to what followed the red-arrow year ends. The results were:
  • 2002 - 24.5%, yielding an extrapolated closing price for 2013 of $2,064.
  • 2005 - 18.5%, yielding an extrapolated closing price for 2013 of $1,965.
  • 2009 - 24.0%, yielding an extrapolated closing price for 2013 of $2,056.
•  Gray arrows identify monthly closes which are not end-of-year, but like the current situation are are months ending with clearly less than double-digit year-over-year gains.

The table and graph that follows provides the following year's percentage gain for each monthly ending with the 12-month rate of change significantly less than double-digits.

I've been doing this kind of back-testing of trading systems for years now, and I don't recall ever seeing such a simple system provide 24 consecutive cases of double-digit gains spread over 13 years. This is an example of why I'm so "dialed-in" to precious metals trading/investing. The banksters' manipulation of gold:

• puts extra down-side "short-term" volatility into precious metals prices (take Tues/Wed of this week as an example) and
  
• blocks big one-day up price moves especially when fundamentally bullish events occur,
  
• BUT ends up with a more consistent long-term trend than any other market I've seen.

Of course, any expectation for double-digit future gains depends on the present bull market and its unusual price action continuing. It might be over. Do you think it might be over? Do your own due-diligence.

MontyHigh, www.worldofwallstreet.us