first majestic silver

Fabulous Fractured Fractal

August 18, 1997

Is the 1985 gold chart trying to tell us something?

Did you ever hear the one about the technical analyst who didn't want to know anything about the company whose price chart he was diagnosing? As an astrologer, we admit to often going a step further. Sometimes we won't even look at the price chart, let alone a balance sheet, before we've scrutinized the corporate horoscope!

It is quite true that the dancing configurations of bars and patterns in a price chart of a stock or a commodity often tell predictive tales. Sometimes with surprising regularity. Chartists have long been aware that price patterns are a graphic description of the internal dynamics of a market at any given time. Certain configurations and shapes may reliably portend the direction future price action will take.

Nowadays, even relatively esoteric market devotions like charting draw many adherents. Thousands upon thousands of traders eagerly trace their "support," "resistance," and "fan" lines, and categorize patterns, all in the hope of anticipating the next significant movement in prices. "Breakouts" from some of these patterns in popularly traded issues will spur buying or selling by numerous speculators and traders, and revision of positions by many investors. While most people tend to want to know the "story" behind why a stock or commodity should rise, or fall, many are coming around to including chart analysis in their bag of decision-making tricks.

For those who subscribe to the cyclicality of all things in nature, repetition of certain patterns may often provide clues to the future. So-called "Elliott Wave Theory" is based on the repetition, in an ever enlarging scale, of an 8 movement pattern. If we assume a primary direction of "UP," this price wave "octave," if you will, consists of a 5 wave advance, followed by a 3 wave "correction" down. This activity then repeats itself at a higher and higher price level, over potentially greater and greater spans of time. It is as though the miniature structure clones itself as a bigger and bigger entity as time goes by. This is the basis of so-called "Fractal Theory." It is also a quality of cyclical manifestation known for thousands of years by sages, metaphysicians, and occultists in every culture. It is described by the phrase "As above, so below - As below, so above."

This saying was a way to impart the wisdom that we can know something about the "whole" by studying what appears to be the "part." We can know something about the invisible, by studying the visible, and we can know something of "spiritual" things by studying "earthly" things. A wonderful illustration might be how a fragment of hair or a drop of blood may reveal a surprisingly larger picture about a suspect or a victim to a trained forensic investigator. Or how observation of the electrical emanations of nerve cells and synapses in the human brain under a powerful electron microscope reveals images startlingly indistinguishable from telescope views of the starry heavens.

For our purposes at the moment, let us return to Earth and admit that man does not live by faith alone, but sometimes a little "bread" helps. So the fair question becomes how does fractal theory help us in the gold market? We would like to suggest a possible clue.

It has not been lost on some market observers how similar the price pattern of the Dow Industrials from the mid 1980's until now is to the pattern traced by that same average from 1919 to 1929. If one were overlaid on the other at the same scale, it might be difficult for any casual market observer to tell them apart. Of course the 1929 Dow topped out at 400, while today's Dow has reached above 8000. But today's Dow, it could be said, is merely a "higher Octave," or "larger Fractal pattern" of the Dow of the 1920's. In 1929 people didn't say that 400 on the Dow was nothing. They tilted their heads back and looked up at it in awe, greed, and amazement. Just as we do today with the 8000 level. And as we are likely to do fifty years from now at Dow 150,000! Of course our dollar will only buy one stick of gum by then, if that. But that phenomenon too fits into the enlarging universe of Fractal Theory.

The point is that if a price pattern SHAPE from the past is close enough to a pattern forming now, we can then take SIZE of the pattern into consideration. That is where the fun begins! So, for example, we offer for consideration the weekly price pattern in Comex gold between roughly February and December of 1985. Not only is this a relatively common gold market pattern, but we find it remarkably similar to the pattern made by the late 70's bull market in gold, and the subsequent unfolding pattern since the 850 high of 1980. The following chart (A) illustrates the similarity between the past 20 years of gold movements and the potentially prophetic 9 months in 1985.

We emphasize "potentially prophetic" because if we step back to view the ensuing price movement that emerged from the internal dynamics of 1985, a magnificent bull market is disclosed. If this 1985 pattern in any way mimics the unfolding of gold market dynamics over the past two decades, then perhaps after gold gets through bottoming during 1997, a glorious future for big yellow will be revealed. Chart B may be showing it to us already.

If you want to see the future, perhaps you must look to the past. Perhaps it is possible to extrapolate (and speculate) concerning time and space (size) relationships from this micro vs macro price pattern comparison. If, for example, we count those roughly 9 months in '85 as 9 time units, then the 20 years since roughly 1977 divided by 9 equals 2.2 years. That is 2.2 years of the long-term gold chart from 1977 to present for EVERY month in the '85 chart.

Looking at the continuation of the weekly chart (B) two months "hence" (4.4 years from now) gives us gold clearly on the way to a new high. And the long term market dynamic in the "future" is even brighter than that!

There is, of course, no guarantee that today's Dow will follow in the candlesticks of the Dow of yesteryear. Nor can we know for a certainty that gold in 1985 was telling us quietly that in the 21st century it would be in the thousands of dollars per ounce. But the chart patterns ARE compelling, and perhaps deserving of further study.

We admit that our attraction to this potential phenomenon is both visual and intuitive. Perhaps someone more inclined to a rigorous mathematical analysis of this fabulous fractal might come up with a more accurate assessment of what exactly is going on here. We are simply pointing out what we have found to be, more and more, an eerie unfolding of the past on simply a larger and larger scale, over a longer and longer period of time. Like a distant drumbeat, there is a rhythm emerging, and it will doubtless grow louder and louder as time goes by. We are standing in King Kong's footprint at the shores of Skull Island, and there are as yet no gorillas in sight. For now.

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