Bull markets...go up!

I see quite a few investors trying to find reasons for why gold will go up or go down, depending on whether they are bullish or bearish.

I've got news for you it's a waste of time. The reason gold is going up is because it's in a secular bull market and that's what bull markets do, they go up!

Here's the latest rational: "Gold is a safe haven and it rallies in times of uncertainty" The reverse of that is of course that gold will drop as long as the stock market is rallying.

Now think about that statement. It's got to be the most ridiculous rationalization I've ever heard.

Let me ask you this, did gold go down from 2002 till 07 when the stock market was in a cyclical bull market? It did not!

Did gold go up when the market was crashing in Sept. and Oct. last year and uncertainty was through the roof? No!

Did gold go down when the dollar was rallying from Dec. to March? Wrong again!

I guarantee no one even thinks twice about what the dollar or stock market is doing when they buy gold. They buy gold for one reason and one reason only. Because it is moving higher or they think it will move higher.

Last summer when tankers were setting in the gulf with no where to unload their oil do you think anyone was paying any attention to that at all? No they were not. They were buying oil for one reason, it was going up.

The only reason anyone needs for buying gold is that this is a secular bull market and secular bull markets don't end until the last buyer has bought. In the gold market that means an unbelievably huge parabolic spike.

We aren't even remotely close yet.

Relative strength

About every 5-6 months the market experiences a major weekly cycle low. These major cycle bottoms almost always involve some kind of panic selling and in this bear market every one of them has taken the market to new lows. At these panic lows the selling is usually great enough to have some effect on every asset class.

I thought it would be illuminating to see what sectors if any showed relative strength as the market fell into the last weekly cycle low in March.

There were a couple of sectors that showed mild relative strength. Semis and emerging markets both held about 11% above their Nov. lows at the March bottom.

China held about 24% above the Nov. lows.

Internet stocks and gold held almost 30% above the Nov. lows.

Not surprisingly the big winners were silver and miners at 47% and 73% above the Nov. lows.

I'll also point out that the entire precious metals sector did not make lower lows at the Nov. bottom. It was the only sector that was already showing relative strength as the market panicked into the bottom of one of the worst crashes in history.

There seems to be a big push into energy as this rally gets underway. That's understandable. Investors always try to return to the sector that did so well for them in the past. Just witness how sharp the rallies were in tech during the collapse of the tech bubble from 2000-2002.

I can't tell you how many friends and acquittance's have asked me if it's time to buy real estate.

As you can see energy showed no relative strength at the last bottom and both oil stocks and solars made new lows. Oil itself was actually weaker than the market and continued to drop into Dec. after the market had already bottomed.

The market has been telling us loud and clear where the big money is going if one will only listen.

Gold not far behind

Today gold followed silver and broke above the down trend line. I think the odds are very good that the B wave decline is over and gold is just starting the next C wave advance.

Gold is now creeping higher and fighting for every point. True bull market action and exactly what we want to see :-)

Silver train is accelerating

On Monday I noted the breakdown of the T4 pattern in the gold:silver ratio. I suggested we could see a violent move higher in the silver market.

Today silver broke through the down trend line. Intraday silver has tacked on over 12% in only 3 days. Like I said, the repricing in silver could get violent as silver moves back to a more historically "normal" price compared to gold.

Even if gold stays at $900 silver would have to rise to $25 to approach fairly valued.

The silver train may be leaving the station

I've been watching the gold:silver ratio form a T4 pattern (the technical rules can be found in the lower right hand side of the home page) for a couple of months now. That pattern appears to have broken today.

Silver, like miners, is grossly undervalued right now. Knowing how volatile silver is, the repricing when it comes could be extremely violent.

The historical average is about 20-30 oz. of silver per 1 oz. of gold. Before today it took 70 oz. of silver to buy 1 oz. of gold.

Agriculture Vs. Precious metals

Commodity bulls tend to unfold in two phases. Whatever under performs during the first phase tends to lead during the second phase.

During the commodity bull of the 70's agriculture led during the first part of the bull. In the second phase it was energy and precious metals.

This commodity bull was the opposite with energy and base metals leading during the first phase. Now it's agriculture and precious metals turn.

The question that many have asked is why I'm not invested heavily in agriculture if this sector should also outperform.

The reason I'm concentrating my investments in precious metals is because we are never going to see the public pile into the agriculture sector. It takes the public moving into a sector to create a bubble. That's what I'm looking for is to ride a bubble to it's top.

It's simply too hard for the average American to buy wheat futures. However it's very easy for anybody to buy gold and silver.

During the last bull market for precious metals gold rose by a factor of 24.28. A similar move this time would take gold to $6214.

To make that kind of bubble type move one needs to be in an asset that is easily acquired by the public. Gold and silver are that asset class.

Crystal ball

I posed this question to subscribers a couple of weeks ago and now I'll ask it again to readers of the blog.

Let's say you have a crystal ball. Yes, an actual working crystal ball. The one catch is that the crystal ball only allows you to see 5 years into the future. It doesn't tell you what's going to happen next week or next year only whats going to happen 5 years from now.

Now let's say that five years from now your crystal ball shows you that the price of gold is going to be $5000 an oz. and silver will be at $150 an oz.

Knowing what the future holds do you take a position in the precious metals market right now and then just start ticking off the days till retirement in Maui or do you worry about where gold is going next week or next month. Do you sit in front of your computer constantly trying to second guess every volatile swing in the bull market?

Now let me ask you this. How many of you think the Fed or any central bank for that matter is going to be raising rates and withdrawing liquidity anytime soon? We all know what happened to the economy when Volker decided to raise rates and fight inflation in the early 80's. It created a double recession and hard times.

Bernanke and every politician in the world is currently hell bent on avoiding pain. How many of you think that we will see the Fed create intentional pain anytime in the future like Volker did? No?

How many of you think they should start ticking off the days to Maui?