Viewing the barbarous relic from a very long-term can help filter out the day-to-day noise. As you can see in the 20-year chart below, Gold’s price (the middle pane) was in a strong uptrend that lasted nearly 13 years, ending in 2011. In the bottom pane, you can see in the ratio of performance between gold and the US stock market, gold massively outperformed, exceeding the SP500 by more than 600% at its peak during that uptrend period.
As you would expect, 2011 not only marked the end of Gold’s uptrend but also its out-performance as stocks have gone on to outperform gold by almost 500%. Investor should be thinking to themselves why be in stocks when gold is outperforming? and vice versa. Diversification?
Gold’s price bottomed at the end of 2015 and has risen slightly since then but has gone nowhere for almost 6 years. Do I need to even say it? It’s been “dead money”. What has caught my attention though, is the saucer bottom that gold’s price has taken on that has formed over that “dead money” period. I shouldn’t have to mention the potential inverse head and shoulders bottom reversal pattern that is in development and screaming out “NOTICE ME”. Please note the word potential as it still has a lot of work to do to get to where it is something more than just “in development”. I have been watching this build out over the course of years and it’s been an agonizing tease as it has failed to breakout above the horizontal resistance zone at least 8 times. As we approach that zone once again, will this time be any different? Or will we get our investment hands slapped once again?
The key for me to over allocate investment capital will be to see at least two things 1) Golds price break out above the pattern’s neckline (blue horizontal resistance area) sooner rather than later before the pattern becomes unsymmetrical and invalid; and 2) a higher high followed by a higher low made on the bottom performance ratio chart. Until then any position in gold is nothing more than a trading vehicle.
At its current pace, investors will be lucky to see both of these items happen in the near term as such it stays on our radar and is stalked. Besides the potential for a future profitable investment opportunity, the other major take-away’s (something I continue to reinforce every chance I can) are 1) investment themes trend for years as such being able to recognize turning points is key to long term out performance 2) just because an investment opportunity can make you money, it may not be worth your investment capital if it doesn’t outperform your other ideas/holdings.