February 15th, 2013

Bullish Technical Gold Outlook

imageHave you ever heard of the “fear industry”?  That’s what Philip Pilkington called those economists and writers who are the leading voices among what can be called “goldbugs”, those who believe that gold is the only safe haven among all asset classes.  In his recent blog post on Naked Capitalism entitled “The Fear Industry – Austrian School Propaganda and the Gold Market“, Pilkington writes

the sheer scale by which the fear industry has taken off is, to be frank, quite surprising. We have all seen the likes of Peter Schiff as a regular guest on the American business news spouting vague talking points about the impending dollar collapse and gold reaching $5000 an ounce…..What is so interesting is that the fear industry grows larger and larger at a time when the make-up of their key market – the gold market – has fundamentally altered its composition…..the fear industry’s most successful year was actually in 2011 and this in turn is reflected in the fact that the gold price reached its record high in the summer of that year……the fear industry has probably stretched itself too thin and it is likely that we saw its peak last year.  From here on in it will probably be diminishing returns and we’ll likely hear of more and more scams as people within the industry compete for ever scarcer resources…… the end game is just around the corner….”

On the flip side of the coin, there’s Trustable Gold who at the beginning of the year in “Gold 2013 – What is the trend for the gold price in 2013 and beyond?” summarized forecasts from various trusted sources:

  • “Bloomberg in November 2012 forecasted a level of US dollars 1,925.- per ounce of gold.
  • The bullion bank ScotiaMocatta forecasts a rising gold price in 2013 and would not be surprised to see a gold price above US$ 2,200.- per troy ounce of gold.
  • BNP Paribas estimated in November 2012 gold to reach US dollars 1,675 per ounce in 2012 and US dollars 1,865 per ounce in 2013.
  • Members of the London Bullion Market Association forecast a gold price of US dollars 1,843.- by September 2013.
  • The global bank HSBC predicts a very similar gold price of 1,850 US dollars per ounce of gold in 2013.
  • The CEO of Newmont Mining estimates that the price of gold in 2013 may increase to US dollars 2,550.
  • In November 2012, Deutsche Bank updated its forecast on the gold price to US$ 2,000.- by next year, i.e. 2013.
  • Credit Suisse expects a gold price of US$ 1,840.- in 2013.
  • In October 2012 private bank Coutts predicted gold prices to reach US$ 2,000.- in the coming months.

At the risk of being lumped with the “goldbug” crowd, I took another look at gold’s long-term trend to see whether I can add anything new to this debate from a technical perspective about gold’s future direction.  I believe I’ve discovered something interesting:

GLD - 20130215

Since it began trading in 2005, the gold ETF, GLD, has had three consolidations in its secular trend higher, each of which lasted around 2 1/2-3 years.  The secular trend channel ascends at the rate of approximately 20%/year and can be clearly seen through the upper trendline connecting the 2006, 2008 and 2011 peaks.  A parallel line connects the 2008 trough with a point slightly lower than the current price, 155.54.

I believe we may be at or very near the end of the most recent 2 1/2 year consolidation and, if the secular trend can be trusted, a new bullish leg will begin shortly.  Extrapolating the channel suggests that the target of this next push higher would be in the area of 240-270 (or gold prices of 2400-2700) towards the end of 2014.

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