by Dominic Frisby, Moneyweek.com
Iām not unduly worried about the gold price.
But when I saw it had dropped $40 yesterday from $1,700 an ounce to almost $1,660 in the space of just a few hours, Iāll admit a concerned eyebrow was raised.
So I suppose a bit of hand-holding is in order in todayās Money Morning ā even if itās only my own.
Gold may not see fresh highs for at least another year
Let me start by re-visiting my forecast of several months back. By my reckoning, we wouldnāt see new highs in gold for at least another year, ie not before autumn 2012, if not later.
I based this forecast on a simple, repeating pattern that gold makes when it gets ahead of itself. In the chart below, you can see goldās action since 2001. Itās plotted on a logarithmic chart, as the pattern is clearer that way. (A logarithmic chart, by the way, measures percentage gain on the y-axis as opposed to an arithmetic chart which measures price. So on a logarithmic chart, a move from 200 to 400 looks the same as 400 to 800 and so on).
You can see what a lovely consistent ascent itās been.
But even within this steady uptrend there are times when itās got a little ahead of itself and then pulled back as I have indicated in yellow on the above chart. One example is in early 2003, another is in May 2006, another February 2008, and of course the same thing happened again in September 2011.
Each time itās done so, itās had a nasty fall, followed by a period of consolidation and digestion. And the more itās got ahead of itself, the bigger the fall and the longer the subsequent consolidation phase. Iām thinking in particular about the 18 months or so that followed the highs of May 2006 and February 2008.
On both occasions it was well over a year before gold made new highs. I believe weāre in just such a period now. The high gold made last September at $1,920 was a typical example of gold going too far too fast. Now we have the consequent period of digestion.
So thatās how Iām interpreting the big picture.
Gold measured in sterling is far less smooth
Out of interest, I present to you now the same chart, but of gold measured in pounds. The graceful ascendency is gone. This chart is hiccuping its way higher in steady, annual burps.
The inverse of this chart ā which shows just how much the pound has fallen against gold ā has the look of a geriatric stumbling blindly to his coffin.
The short-term outlook for gold
Now letās zoom in and take a look at the nearer term. Here is a one-year chart of gold.
My famed 144-day moving average (blue line) has now become resistance, unfortunately. I see good support in the $1,550 zone, where I have drawn the light blue band. And I see resistance at $1,800 where I have drawn the red band.
These will be, I suspect, the two lines in the sand for the time being, probably until the autumn. Of course, these are just guesses ā I know no more than you.
But again, staring at the chart and guessing, I suggest a retest of at least $1,600 looks to be on the cards before goldās normal, upwardly-mobile business can resume. But such a re-test, should it occur, would give a nice symmetry to the chart and add to that decent-looking base at $1,550.
Could the miners finally start to outperform?
As for silver, I see a similar picture with strong support at $26, but resistance at $38. Silver does seem to be displaying some relative strength, which is positive.
Also on the positive side of things, I am seeing some buying coming in to the junior resource sector. This is probably because of broader stock market strength, but Iām hoping weāre in the early stages of one of those periods when the stocks outperform the metals. Not before time, thatās all I can say.
Iāve just come back from the PDAC in Toronto, which is the worldās biggest mining conference. I must have spoken to over a hundred different companies while I was there. Iāll be publishing my notes from the conference, as well as my pick of the PDAC in a new report, so watch this space.
And, finally, Iāve banished my inner Luddite and signed up for Twitter. I have 136 subscribers so far, so plenty of room for upside. If youāre on Twitter, please follow me @dominicfrisby.