Has Gold Bottomed in 2017?

gold bottomed

In case you missed it, you can watch an “At a Glance” summary of this week’s blog posting here. But for now, let’s dig in…

Has Gold Bottomed? 

Should you buy gold? Should you buy a lot of gold? Should you buy gold coins? Numismatic coins? Silver bullion? Gold bullion? Platinum?

Gold has been in the news lately for going head to head with the S&P 500 in 2017. So has gold bottomed and should you buy?

What I want to do is go through an exercise that I think you’ll find helpful in pointing out how you can have two people or two groups of people looking at the same asset and both even claiming to using price charts and technical analysis/information and yet they can be on polar opposites of what they are wanting to do and suggest with gold.

Gold is a good example to show how stories can change based on the length of time an investor looks at to find the story. I want to show you how one can be using the exact same tools and looking at the same asset class and get a very different point of view.

Price Charts Are Stories

What story are you telling yourself? Is it yours? Is it a newsletters’? Is it a big-box advisers? Or is it a price charts? And if it is a price chart then what frequency and length price chart are you using… because it matters. The two best storytellers in the investment world are the big-box advisers and the pick of the month newsletter writers.

The big-box story starts off by describing a dangerous, complicated and random world. A world of cliffs and raging rivers and certain death if traveled alone. But the big-box adviser says, “don’t worry we’ve figured it out, we’ll be your guide.” Just hand us your money and we’re going to guide you through this dangerous world via a long-only-never-get-out-of-the-market approach. Because anything else would be stupid.

And then you have the “pick of the month” newsletter story… they rail against the big-box world and say, the Holy Grail is the ticker symbol. Just find the right set of ticker symbols and you are home free. They say to gather 30 to 40 ticker symbols and then “just” add or subtract from that group of symbols each month.

My story is different. It’s a story of simplicity. It’s based on answering two questions: (1) Should I be In or out of the market? And then (2) If IN then where, or If OUT then where?

Two powerfully simple questions. Get these two questions right and you win.

Stories carry a lot of weight. In fact they carry the most weight out of anything. And not just in the world of investing but in all areas of our lives. But I’m going to stick with investing for now.

Price direction is the main character in all of my stories about simplicity. Why? Because price and its cumulative direction is the cleanest piece of data about what is likely to happen in the next three months, six months and twelve months into the future. Price data looks into the future. Fundamentals look into the past. I want to look forward. Therefore “price” is my central character and even all its supporting roles.

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Gold bottomed story

But believing “price” is king is not enough because “price” can be viewed in different frequencies and time lengths. I present to you six different pairings of frequency and time lengths of gold.  

Once upon a time…

What story is the 11-day gold chart telling?

The black line below represents a one-minute frequency going back 11 days. What’s its story? When I look at that price chart I see a story of bearishness. The price is falling. Gold is dangerous. Get out. Stay away.

Gold Bottomed

What story is the 90-day gold chart telling?

If we step back and look at 90-days of data on a 10-minute frequency, the story changes. We filtered out some noise and now the story goes from being bearish to bullish. Why? We’ve filtered out short-term noise and have taken a big step back.

Gold Bottomed

What story is the 770-day gold chart telling?

The gold chart below is showing us 770 trading days of data or 3.5 years on an 1-hour  frequency. Now we go from a bullish story to a bottoming story. As we take this third big step back, the price chart starts to tell us a story of an investment bottoming.

Gold Bottomed

What story is the 1,540-day gold chart telling?

As we take our fourth big step back, now looking at a 1540-trading day (seven years) price chart with a 1-day frequency we see the bottoming story getting clearer. This wider or bigger picture is backing up the bottoming story of gold. Bigger perspective = clearer picture.

Gold Bottomed

What story is the 3,080-day gold chart telling?

Note: I know people don’t talk about years in a daily framework. But I want to keep the daily framing so we can see how going from a 11-day to a 3,080-day time length can change the investments narrative.

Below we have a 3,080-day (14 years) price chart on a weekly frequency. Again, with our fifth big step back we can see that for a third time the bottoming narrative is becoming even clearer.

Gold Bottomed

What story is the 8,140-day gold chart telling?

And finally our last big step back. This sixth big step back captures 8,140 trading days of data (37 years) using a monthly frequency. And again for the fourth time, we can see with even more clarity how the bottoming narrative seems to have the strongest narrative.

And even though the last four price charts agree on a bottoming narrative, that doesn’t mean gold has to have bottomed. It just means gold looks like it’s bottoming.

Gold Bottomed

De-clutter your investment life by updating your storytelling.

Time frames Tell The Story

What’s the takeaway? Time frames matter. And stories matter. If you’re looking at a 1-minute price chart that goes back 11 days you get a very different story than if you look at a monthly price chart that goes back 37 years.

From the price chart comes the story. But details matter. And that is why you can have two “technical traders” look at the same asset during the same week in time and get two different stories.

 

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

 

 

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