Gold’s Downtrend: This Too Shall Pass

  • Like on Facebook
  • Share on Google+
  • Share on LinkedIn

Gold is down nearly 25 percent year to date and down nearly 35 percent since its September 5, 2011, high of $1,921. The downtrend has now exceeded two years.

Hardly sounds like an asset in which you’d want to invest.

But the core reasons for holding gold haven’t changed. How, exactly, do the G7 countries escape their morbidly obese levels of debt without causing serious repercussions? Can you really print money at never-before-seen levels and have no negative consequences? Interest rates may rise, what would normally detract some investors from gold, but what if inflation rises faster?

On a fundamental basis, it seems more prudent to buy gold now than it did in 2007. Which means that the two year-plus downtrend will pass, sooner or later. No bear market (nor bull market) lasts forever.

History confirms this. Perhaps the most relevant period to today is the mid-1970s. In spite of many reasons for gold to rise then, the price fell — dramatically and determinedly. But eventually fundamentals prevailed and ushered in one of the greatest gold bull markets in modern history.

Here’s how our current downtrend compares to that bear market cycle.

Golds1976CorrectionandRecoverynew

As you can see, during the big correction of the mid-1970s, gold declined 47 percent and took 187 weeks to recapture old highs. Our current downdraft hasn’t been as deep, but it’s lasted longer.

More Articles About:

To contact the reporter on this story: staff.writers@wallstcheatsheet.com To contact the editor responsible for this story: editors@wallstcheatsheet.com

Yahoo Finance, Harvard Business Review, Market Watch, The Wall St. Journal, Financial Times, CNN Money, Fox Business