Riding the golden bull was never going to be easy

Riding long-term bull markets from beginning to end is a very profitable way to invest. However it is a great deal easier said than done, especially when the bull, in this case gold, is doing it’s very best to buck you off.

Violent price gyrations, such as those recently experienced in the gold market, can play havoc with investors’ emotions. They make it virtually impossible to stay with the long-term trend, especially when they are accompanied by such bearish commentary. It is at times like these that nervous investors need to take a step back and look at the big picture.

A long-term technical look at gold

The chart below shows the monthly price movement of gold over the last 20 years. It also shows a technical indicator that is excellent at identifying long-term trends. The 8/ 21 EMA (exponential moving average).

The 8/ 21 EMA issued a buy signal on gold in December 2001 and since then the yellow metal has been in a powerful uptrend, rising 469%.

A 20 year monthly logarithmic chart of gold (Click on the chart for a larger version)

A 20 year monthly logarithmic chart of gold (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The 8/ 21 EMA indicator is important for gold investors because it is unfazed by the metals wild swings. In fact, even in 2008 when the gold price fell from a high of $1,033 in March to a low of $681 in October (a 34% decline), the indicator did not issue a sell signal, and the uptrend soon resumed.

Although some research firms and market commentators have recently called a top in gold, we believe that the major bull market is still intact and this long-term technical view of the market confirms it.

The fundamentals

Those approaching gold from a fundamental perspective should be asking themselves the following questions:

  1. Are interest rates in the US, UK and many other countries still negative?
  2. Are central banks around the world still printing money?
  3. Is there a risk that inflation will rise in the months and years ahead?
  4. Is there still a risk that nations will default on their debt?
  5. Do many of the problems that led to the 2008 financial crisis still exist?
  6. Are creditor nations’ central banks still buying gold?

The answer to these questions is of course, yes.

Not only is gold’s long-term uptrend still intact, the fundamentals also support a continuation of the long-term bullish trend.

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