Sticking with the precious metals topic, as it seems to be generating a lot of interest. I’ve received a lot of emails, some of which love the content and the charts, some of which totally disagree with ever buying Gold or Silver, and some of which think I’m crazy (those are standard haha).
Before I start, I would like to say that I am not to sure why some people make it a habit of disagreeing in frantic fashion. The point of this blog is to show you what I am doing with my money. If I lose money, it is my own fault and I get poorer, not richer. I am not really giving out financial advice and many of you who have been reading the blog for awhile would have noticed that my favourite line is to win (and also lose) money based on your own research and analysis.
Chart 1: Rarely has the price of Gold fallen by one third over a few years!
The chart above shows Gold since it floated on the free market exchange in late 1960s, together with a 1 year and 3 year rolling performance. The bottom of the chart has a grey shaded area, which represents an oversold zone. Historically, the price of Gold has rarely fallen by 30% or more over a any Rolling 1 year or 3 year periods. In 2013, Gold just fell by 30% over 12 months and this week markets a three year anniversary of the Gold’s bear market, pushing it into an extremely oversold zone, down 32% in the last 36 months.
Several periods that market performance as awful as today were:
- in middle of 1970s the 1 year rolling performance fell by more then 30%
- in early 1980s both 1 and 3 year rolling performance fell by almost 40%
- in middle of 1980s the 3 year rolling performance fell by more then 30%
- in late 1990s the 3 year rolling performance also fell by more then 30%
All of those occurred at or near major Gold bottoms. Therefore, drawdowns from extremely oversold levels were usually on a smaller scale from a value investors point of view (unlike traders, who think a drawdown of 5% is huge). The indicator marked major bottoms almost immediately in 1976, 1985 and 1999. During the Precious Metals bubble crash of early 1980s, the oversold indicators persistent for longer and initial signals did not work as quickly.