Here’s some great stats on how long it has taken gold to reach new highs in each of the 3 previous large corrections in the current gold bull market of the past 11 years. While the below article is based upon the US dollar price of gold, it can give an indication of what to expect.
However we thought it was useful to look at the largest correction in the New Zealand dollar price of gold as a form of comparison. Since we don’t have the manpower of Casey Research we haven’t gone back over all corrections and calculated the numbers down to days and decimal points but it is still a useful comparison we think. (You might want to read the rest of the article first and then come back up to our NZ dollar gold price comparison for it to make the most sense.)
As you can see from the chart above, the biggest fall so far in New Zealand dollar terms for gold was from late February 2009 (NZ$1975) through to late August 2009 NZ$1375. In this time gold in NZD dropped approximately 30%.
It took 106 weeks to reach the old high again, but a total of 128 weeks to stay above the old high of $1975 (until 8 August 2011).
So that’s significantly longer than the USD corrections shown below.
An interestingly side note from the chart is that the old high of $1975 now seems to have become, in technical speak, “support”. The price of gold in NZD has bounced up from around this $1975 level twice since breaking through it.
So this really puts the current fall into perspective. From the intraday high of $2358 on 6 September 2011 to the recent low of $1995 on 29 December 2011, we have only fallen 15%. We’d be surprised if it took anywhere near 106 weeks to reach this high again (but who knows?). Food for thought anyway. Read on to see the size of past corrections in US dollar terms. Then leave us a comment at the end of the article with your guess as to when a new high will be reached (if you think it will!)…
By Jeff Clark, Casey Research
Some investors are frustrated and a few are worried that gold seems stuck in a rut. This stall in price has happened before, of course, but since 2001 it’s always eventually powered to a new high. Unless one thinks the gold bull market is over, it’s natural to wonder how long might we have to wait before seeing another new high.
Absent some sort of global shock that sparks another rush into gold (easily possible in today’s climate), I think the answer may lie in examining the size and length of past corrections and how long it took gold to reach new highs afterward.
It makes sense that big corrections would take longer to reach new highs than small ones, but I wanted to confirm that assumption with the data. I also wanted to determine if there were any patterns in past recoveries that would give us some clues that we can apply to today.
Gold set a record on September 5 at $1,895 an ounce (London PM Fix) and to date has fallen as low as $1,531 (December 29), a decline of 19.2%. In order to determine how long it might take to breach $1,895 again, I measured how long it took new highs to be mounted after big corrections in the past.
The following chart details three large corrections since 2001, and calculates how many weeks it took the gold price to a) breach the old high, and b) stay above that level.
(Click on image to enlarge)
As you can see, it took a significant amount of time for gold to forge new highs after big selloffs. And yes, the bigger the correction, the longer it took.
In 2006, after a total fall of 22.6%, it took a year and four months for gold to surpass its old high. After the 2008 meltdown, it was a year and six months later before gold hit a new record.
Our recent correction more closely resembles the one in 2003. After a 16.2% drop, gold matched the old high seven months later. It took another two months to stay above it.
So when do we reach a new high in the gold price?
Let’s apply the same ratio from the 2003 correction and recovery: If it took 29 weeks and four days to reach a new high after a 16.2% correction, a 19.2% pullback would take 35 weeks and 0 days. That works out to Monday, May 7, 2012.
An exact date is pure conjecture, of course. On one hand, gold could drop below the $1,531 low if the need for cash and liquidity forces large investors to resume selling. On the other hand, Europe and/or the US could resume money printing on a large scale and send gold soaring overnight. The point of the data is that it signals we shouldn’t be too surprised if we don’t hit $1,900 for another four months yet. And if it takes another two months or so to stay above it.
Think that’s too long? There are some important reasons to not let it discourage you…
Once gold breaches its old high, you’ll probably never be able to buy it at current prices again.
That’s a rather obvious statement, but let it sink in. Buying now at $1,600 and then watching the price fall to, say, $1,500, wouldn’t be fun – but it’ll probably hit $2,000 or higher before the year’s over, never to visit the $1,600s again this cycle. If that turns out to be correct, the next four months will be the very last time you can buy at these levels. You’ll have to pay a higher price from then on.
Look at it this way: If the “rebound ratio” is similar to the one in 2003, you have four months and counting to buy whatever gold you want before it’s no longer on sale. It’s entirely possible that by this time next year you will never again be able to buy gold for less than $2,000 an ounce – unless maybe it’s in “new dollars” or some other currency that circulates with fewer zeros on the notes.
The data can also help you ignore the noise about gold’s bull market being over and other nonsense spewed from mainstream media types. If gold doesn’t hit $1,900 until May, you’ll know this is simply normal price behavior and that they’re overlooking basic patterns in the data. And when September rolls around – seasonally the strongest month of the year for gold – and the price is climbing relentlessly and they’re caught off guard by it, you’ll already be positioned.
Regardless of the date, we’re confident that a new high in the gold price will come at some point, because many major currencies are unsound and overburdened with debt – and they’re all fiat and subject to government tinkering and mismanagement. Indeed, the ultimate high could be frighteningly higher than current levels. As such, we suggest taking advantage of prices that won’t be available indefinitely.
After all, you don’t want to be left without enough of nature’s cure for man’s monetary ills.[Traditional savings accounts simply do not cut it in today’s economic environment – government-promoted robbery means they often lose money overall. Learn how you can protect your assets –and even get ahead.]