Gold: A Long Term Perspective

by JDH on October 24, 2015

As a Canadian I am mourning the Blue Jays’ loss on Friday night.  They made the playoffs for the first time since 1993, and it was a good run, but it all came to end on Friday night in Kansas City.  Oh well, that’s the way it goes.  It’s only baseball.  1993 was 22 years ago.  2001 was 14 years ago, and that’s where we will start today with a long term view of gold.

Gold=Oct24-2015-15 years

Gold bottomed back in 2001 at well under $300 per ounce.  It then went on quite a run, peaking around $1,900 in the fall of 2011.  Over the last four years gold has gone in the opposite direction, touching under $1,075 this summer.  Quite a ride.

As I show in the chart, you can take two long term view of gold.  The blue uptrend line, drawn off the 2001/2002 lows, shows a moderately sloping uptrend line up to the $800 level.  So, gold could fall to $800 and still be in an uptrend.

The shorter term view, the red line drawn off the peaks in 2011 and 2012, shows a down trend that would not be broken unless gold exceeds $1,500.

Thank you Captain Obvious: gold could go down to $800, or could go up to $1,500.  Not a particularly informative statement.

Gold-Oct24-2015-5years

A closer view is only slightly more instructive.

Looking at a chart over the last five and a half years the $1,500 level is obvious; a shorter term down trend line would bring gold back up to $1,250.  The slight recovery blue line is barely a blip.

We can conclude, it would appear, that gold is not out of the woods yet.

There is one additional factor, and that is geography.  The chart on the right is gold priced in US dollars.

The chart on the left shows gold in Canadian dollars, courtesy of goldprice.org:

Gold-CDN-5Years-Oct24-2015

The peak was in 2011, but in Canadian dollars the downtrend was broken in early 2015, and one could argue that the bull market started in 2014, as gold has risen from under $1,300 CDN to $1,529 CDN today.

The Canadian dollar chart of gold shows the true value of gold.  It’s an insurance policy.

The U.S. dollar has weakened somewhat recently, so the price of gold in Canadian dollars will be impacted by both gold and the U.S. dollar, but it would appear that gold is, for Canadians, a good investment.

And that’s why some stocks, like FNV.TO – Franco-Nevada Corp., look totally different than a pure gold chart:

FNV-Oct24-2015

Since the bottom in 2011 it is clearly in a bull market, and at exactly $70 CDN Franco Nevada is only $4.10 away from it’s all time high at $74.10, set back in February of this year.

Interesting.

A four year bear market in gold priced in U.S. dollars and a blue chip stock is within $4 of it’s all time high.

Very interesting indeed.

Not all blue chips look the same.

RGL.TO – Royal Gold Inc. is not closing in on an all time high.

RGL-Oct24-2015

Not even close.

Royal Gold was over $95 in February, and sits just over $68 today, so there is no sign of a new high anytime soon.

But, as the chart shows, a close over $70 would be a good sign.

So what’s my point?

In Canadian dollars gold, and Canadian gold stocks, look better than they may appear, but they aren’t out of the woods yet.

As I described last week I lost my position in Franco Nevada when my shares were called, and with the run up this week I haven’t yet bought back in.  That may prove to be a mistake.  Time will tell.

However, my orders are placed, and on a pullback I will be back in.  I have not yet covered for November on my remaining holdings, but if the next few days are strong, I will.

That’s the update.

RIP Blue Jays.

Go Gold.

See you next week.