Gold Fireworks On The Horizon
The gold price has risen about 20% since I wrote “It’s Time To Get Greedy In The Gold Market” but it looks to me like it could now get really exciting for gold bulls.
On the weekly chart there is now a clear head and shoulders bottom pattern in play. A break above the neckline would confirm the pattern and project an eventual target near $1,650. There is also a very interesting price analog from 2008-2009 (hat tip, @ECantoni) that suggests this breakout could be imminent.
Since it’s peak in late-2011 gold has acted very much like it did from 1996-2002 (hat tip, @NautilusCap) at least relative to the broad stock market. There is a 97% positive correlation between the past six years in the gold/SPX ratio and that earlier 6-year period. In fact, it now looks like the gold/stocks ratio could have some serious catching up to do to the upside.
And if the future for gold rhymes at all with the early-2000’s period it could have much more upside over the next several years than even that head and shoulders bottom pattern would suggest.
Generally, I believe it’s important for investors to have significant exposure to real assets like gold at all times if only for the purposes of diversification. Today, there is a good technical case, as well as a fundamental case, for investors to overweight the precious metal.
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