I’ve been meaning to post this article for awhile, but everytime I almost got around to it, gold would have reversed higher like a bullet and I didn’t want to come out and say “gold is in a bull market” while it’s screaming to new highs, because then it’s pretty self-evident.

So gold is on a serious pullback right now, one of those reversals where everybody is calling for an end to the gold bull market.

Because I’ve been invested in gold since around 2002, I often get asked where I think the price is going. To this I reply, especially over the last couple years, that I no longer attempt to predict anything. To digress briefly:

I was one of the people who believed the camp of pessimists that said a mega recession was approaching. It was a prediction that turned out to be correct, but when it finally happened I was still taken off-guard and surprised by some of the effects of it. For example, I thought gold would go UP during the onset of the Global Financial Crisis (GFC), instead, gold tanked (along with everything else) and the US dollar soared. In retrospect it made sense but at the time it blindsided pretty well everyone.
My key takeaway from the GFC was that even though everybody buys into predictions that may even be occasionally correct, the truth is nobody can predict the future. Further, what distinguished successful investors (and even traders/speculators) was not an ability to predict. What I finally figured out is this:

The most celebrated traders and investors do not succeed by predicting the future, they succeed by correctly understanding the present. When you understand the present, the future pretty well takes care of itself.

While not an overly technical trader, I subscribe to the Stan Weinstein school of thought that markets basically run in four stages: basing, running, topping or tanking. When you correctly determine which one of those four stages a given asset is in, you’ll know what to do.

When you look at a long term chart for gold, it becomes pretty evident. Gold is in a stage two bull market phase. The reason you hear a lot of “gold bull is over” talk is because you are dealing with people who consider 9 months “long term”, so they’re looking at the 1 month or 6 month charts and they’re crapping themselves. When you take a step back and look at the bigger picture, one wonders what everybody is panicking about.

A few other reasons I think gold is still IN a bull market:

– gold is still in a healthy uptrend, but it has not gone parabolic. There has been no “buyers panic” to pile into gold. Bull markets tend to end in these manic blow-off highs, so once a confirmed bull market is in progress (like this one), I believe it to be in effect until I see the buying panic.

– many pundits refer to TV commercials about “gold” as proof that “the top is in”. Yet those TV commercials are all “buy side” ads. “Sell your unsused gold to me for top prices!”. I do not think these point to a top, until they flip over to the other side: When all the cheesy TV commercials become “learn how to get rich trading gold futures” and “buy my gold NOW before it’s too late”, then we’re wise to sniff the top.

– every currency on the planet is expanding its money base. There is a race to the bottom now as everybody tries to inflate their way out of deflation and people try to politely default on their debt by paying everybody else off with devalued currency. All of this supports gold pricing in terms of other currencies.

– right now pullbacks draw out calls for the end of the bull market. This pretty well guarantees that it’s not. When pullbacks cease to be heralded as the end of the gold bull and start to be welcomed as buying opportunities, we will be topping out. This is the corollary of the “nobody can predict the future” maxim. Which is basically that “whatever is being predicted, will be wrong”.

Again, I’m not predicting higher gold prices. I am positing that gold is currently still in a bull market. The difference is subtle, but important.