Gold Bottom Watch, 2008 vs Now

Gold Bull

Gold continues to drift off its bottom of $1,080.80 an ounce hit on July 24. We are now about 7.5% off those lows, and it has taken us two and a half months to get there. If this is indeed a bottom it is very unlike the 2008 bottom hit on October 22.

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On October 22, 2008, the SPDR Gold Trust (NYSEARCA:GLD) traded in a range of 14% in a single day, closing more than 8% off its lows that day. That’s more than gold has moved up since the recent bottom over 2 months ago. The October 2008 bottom was a bottom that resembled a rubber ball being slammed to the floor and bouncing right back up. Gold’s action since July has resembled more of the proverbial climb of the wall of worry.

The difference between 2008 and now is that 2008 was not a bear market bottom, because there was no gold bear market in 2008. It was the end of a correction, and it ended with a very strong bounce. The last true gold bear market bottom ended with a slow climb from 1999 until 2002. Bear markets don’t usually end with strong bounces, but with slow gradual climbs like we are seeing now.

The Gold Bugs Index (^HUI) is still outperforming gold by a large margin of 28% to 7.5%, still consistent with bull market action. Today’s pullback in the major gold miners (NYSEARCA:GDX) despite gold’s continued slow push higher should not be viewed as anything more than a technical pullback following gold’s failed push through resistance at $1,170. Immediately upon hitting that number in the futures market, the metal traded down immediately as technical traders sold at resistance, with gold stocks taking the brunt of the selloff. If this keeps happening then it could signal trouble, but once is no cause for alarm.

The $1,170 area has been serving as key resistance since late 2014 and if and when gold breaks through that barrier, the chances of the final bottom already being printed rise even more. We hit that level today and bounced back down again, but it is very unusual for any asset class that has been in a protracted bear to break through resistance on the first try. The next time $1,170 is approached, gold should break through, assuming we are in a new bull market.

What we should see now is another few days of basing until gold makes another run at $1,170. When it breaks through, we should also see commenters and analysts trying to pick a top, which should signal that the wall of worry is still intact.

The less bullish people become as the gold price rises, the higher the chances are that we are actually in a new gold bull market rather than a bear market rally.


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