Newsletter Reviews

Comparing the 2012 bottom to past bottoms

SOURCE: [The Daily Gold] -  Mark Twain said that history doesn’t repeat itself but it rhymes. This is also true in the markets. No bull or bear market or particular event is ever the same. Yet, because there are similarities, the prudent analyst always studies history. When trying to foresee bottoms and tops we always compare current conditions (price action, sentiment, fundamentals) to past conditions. We continue to believe that the recent bottom in precious metals markets falls into a group of major bottoms that includes 2000-2001, 2005 and 2008. In today’s piece we examine how these markets evolve following such bottoms which hopefully can give us an idea of what to expect in the coming weeks and months.

First we show a chart of the HUI, Gold and Silver during the 2005 bottom. For the equities, the 2005 bottom was a successful retest of the 2004 bottom. Gold and Silver actually bottomed in terms of price in May 2004 and made a higher low in early 2005. The metals showed relative strength prior to the bottom while the shares emerged first after the bottom. It’s important to note that no long-term technical damage was present in any of these markets at the time of the 2005 bottom. We should also note that while the HUI and Gold confirmed their bottoms within months, Silver didn’t close above its initial high (early June) until October.

The 2000-2001 bottom is somewhat of an outlier. The equities bottomed first in late 2000 followed by Gold which bottomed a few months later. Silver didn’t bottom until a year after the equities bottomed. This was the end of a generational bear market and thus, each market was extremely oversold and rebounded from great technical damage. The equities quickly embarked on a significant bull move while the metals lagged for months.

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