This past Friday, the 4th of November, Gold was up $48 on the day, just a shade under 3%. Rallies this size are a rare event in the historically very stable Gold market. To fully contextualize just how rare it is, consider the five-year period from 2017 through 2021. There are over 1100 trading days in that span, yet gold could only manage one 3% up day in that time frame. In fact, In the 10 years prior to 2022, there have been only eight 3% up days in the Gold price. Of the 8, four of them were clustered in 2016, and 3 of them in 2013. When you have events as rare as a 3% up day in Gold, Bag is of the opinion the markets are trying to tell us something. To properly comprehend what we are being told, let’s examine the price action in gold from both 2013 & 2016, and see if there is a discernible pattern.
2013…
Gold entered 2013 at $1664 an ounce. At the time, Gold was hitting multi-year highs in price. Also of note was 2012 marked the 13th consecutive “up” year for Gold. That is hard to do in any market, let alone one as stable as Gold. In the spring of 2013, with Gold humming along in the $1600s, the 13-year bull market in Gold came to an end with the proverbial “bang.” Gold fell 25% in just a 3-month span, trading below $1200 by the end of June. On July 1st, Gold finally fought back a bit with a $50 up day, the first of three 3% up days that year. It came right on the stone bottom of the gold price for the year - in fact, with hindsight now available, it was a multi-year bottom. Gold did manage two more 3%+ up days in the fall that year, but the damage had already been done. The Bull was dead - and Gold finished the year at $1201. This was a 28% decline on the year, far and away the most significant percentage decline any year this century, the next worst year being a paltry 11% loss. The big takeaway from 2013 was all 3 of those 3%+ up days came right at, and just after, the gold price bottomed.
2016…
Gold entered 2016 at $1072 an ounce. When the gold bull died in 2013, the gold price spent the next five years meandering between $1050 and $1360. The lowest price gold traded in that 5-year stretch came just before Christmas in 2015. It very briefly traded below $1050 an ounce. In fact, that $1050 marks the lowest gold has traded at - in the last 14 years! It would be fair to say with gold starting 2016 at $1072; it was sitting at generational lows. With this in mind, there was a cluster of 3%+ up days that year, with 2 in early February and another in March. So just like in 2013, we have a bunch of 3% up days appearing shortly after gold makes a multi-year bottom in price. Hmmm…
At the time, in 2013 & 2016, it was impossible to know the Gold price was at a significant bottom. It was obviously trading at multi-year lows then, but that is not necessarily the bottom. The distinction is an important one. It’s only with years since in the rear-view that we can now say for certain gold was trading at a significant bottom in both 2013 & 2016. At or near, both of those bottoms appeared a cluster of 3% up days, the likes of which have not been seen at any other time in the last decade, until now.
2022…
On Thursday, Nov 3rd, the day before the big rally, Gold opened at $1620. It just so happens $1620 was a multi-year low in the gold price. Also of note, the Nov 4th rally was not the first big rally in 2022; we already had a $59 up day earlier this year. Folks, three times qualifies as a pattern. We can see from both 2013 & 2016 that 3% rallies (particularly clusters of them) only come when gold is bottoming out. It is highly likely years from now, when hindsight is available; we will look at that $1620 price as not only a multi-year low (which we can see now) but also, more importantly, a multi-year bottom.
Bag has always operated on the premise that you listen when the universe tells you something three times. If you want to buy low - which is half the buy low & sell high path to success in the financial markets, Bag is of the opinion - NOW is the time. Buy Gold!!
I hope you are right ... and while you are buying gold you should probably buy a bit of silver too.
You may be right bag :)