The dollar price of gold has been on a roller-coaster ride for the past six years. But the past six weeks have been a turbocharged version of that. Investors should expect more of the same for reasons explained below.
The six-year story is the more important for investors and also the more frustrating. Gold staged an historic bull market rally from 1999 to 2011, going from about $250 per ounce to $1,900 per ounce, a 650% gain.
Then, gold nose-dived into a bear market from 2011 to 2015, falling to $1,050 per ounce in December 2015, a 45% crash from the peak and a 51% retracement of the 1999-2011 bull market. (Renowned investor Jim Rogers once told me that no commodity goes from a base price to the stratosphere without a 50% retracement along the way. Mission accomplished!)
During that precipitous decline after 2011, gold hit a level of $1,417 per ounce in August 2013. It was the last time gold would see a $1,400 per ounce handle until last month when gold briefly hit $1,440 per ounce on an intra-day basis. At last, the six-year trading range was broken. Better yet, gold hit $1,400 on the way up, not on the way down.
The range-bound trading from 2013 to 2019 was long and tiring for long-term gold investors. Gold had rallied to $1,380 per ounce in May 2014, $1,300 per ounce in January 2015, and $1,363 per ounce in July 2016 (a post-Brexit bounce).
But, for every rally there was a trough. Gold fell to $1,087 per ounce in August 2015 and $1,050 per ounce in December 2015. The bigger picture was that gold was trading in a range. The range was approximately $1,365 per ounce at the top and $1,050 per ounce at the bottom, with lots of ups and downs in between. Yet, nothing seemed capable of breaking gold out of that range.
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