Monday, September 7, 2009

Watching the wrong number

Obviously $1000 is a big psychological number and most investors are concentrating on a breakout of that level as a sign the secular bull market is still intact. However $1000 isn't the important level. The important breakout has already occurred when gold took out the 1980 highs of $850.

W.D. Gann noted that the size of the consolidation often signals how large the ensuing rally will be once an asset breaks out of that consolidation.

The 28 year consolidation in gold is foretelling a bull market rally like no other that any of us have ever seen.

That's not surprising considering the monetary policies now being adopted by every central bank in the world in the attempt to halt the slide into a global depression.

I've posted the Dow:gold ratio many times on this blog along with my feeling that we will again see that ratio hit 1:1.

Actually I don't think we are going to see 1:1 this time. The size of gold's consolidation and the magnitude of central bank stupidity is suggesting that the Dow:gold ratio is probably going below 1. I wouldn't be at all surprised to see .5:1 before this is finished.

The one thing you can count on from a secular bull market, especially a gold bull, is that it is going to go much further than almost anyone expects.