first majestic silver

Gold Bull 70's vs. Today

August 2, 2004

3 weeks ago I was being interviewed on Financial Sense Newshour with John Embry and Bill Murphy and Jim Puplava asked us to comment about the gold bull market of the 1970s vs. today. I thought it would be an interesting study to put some weekly charts together remembering the gold bull of the 70's and looking at the unfolding gold bull of today. Let me just say that the secular gold bull market of the 70's unfolded with much more fireworks than phase one of the secular bull market today. Gold was up almost 600% in the first several years, versus the methodical and much more controlled advance of gold today. At its recent peak gold was up roughly 72%, far less than the explosion of the early 70's. Although there may be some similarities between the secular gold bull market of today vs. the 70's, this one will have its own personality and will unfold somewhat differently than its predecessor of the 70's leaving its own unique mark in history.

Enjoy the weekly charts of gold with supportive moving averages from the 70's and today:

The following weekly gold chart from late 1971 through the end of May 1975 shows gold's advance from $35 to roughly $200 an ounce. The center of the chart shows a significant decline in gold which was halted by the 65 week moving average. The public was officially allowed to purchase gold on December 31, 1974 exactly at the top of the market! After peaking, the 65 weekly moving average provided brief support in early '75 before giving way and letting a significant decline begin. Note the bearish divergences or declining peaks in the RSI at the bottom of the chart as the price of gold kept hitting new highs.

Also note the 50-week moving average, which was very supportive for gold during its advance in the early 70's.

The following charts show the precipitous decline in gold after the 65 and 50-week moving averages were decisively broken to the downside.

Another view this time showing the 50 weekly moving average:

After the dramatic correction in gold concluded in 1976, the gold bull was back and ended in a stampede in 1980. Note how the 50 weekly moving average provided excellent support during the bull movement of the 70's. Also note the weekly MACD near 100 and the RSI near the 100 level as well!

After the secular gold bull market peaked in 1980, gold tried to rally off the 50 weekly moving average in late 1980, but failed. An attempted rally back up to the 50 weekly moving average eventually failed...

...and the decline in gold began in earnest, tumbling from around $600 to roughly $300.

Now let's move to the secular bull market in gold today.

The following chart shows the 65 weekly moving average providing support for gold since the terrorist attack on the United States in September of 2001.

Interestingly, gold has recently broken its 50 week moving average to the downside and rallied back above the 50 weekly average only to fall back below once again, a fascinating bull/bear battle taking place along this moving average.

Looking at the gold market, one has to look at the HUI as well. The following multi-year weekly chart shows that the 50 weekly moving average has been supportive during gold's advance from around the $250 level. Recently the HUI broke decisively below this moving average. The HUI has since rallied up to the 50 weekly moving average and bounced off the average as it is now acting as resistance. Note also the RSI attacked the 50 level and bounced off as well.

Looking at the 65 weekly moving average, it has also been supportive for the HUI during gold's advance. The bull/bear battle in gold has made for interesting action in the HUI. The HUI has broken below, moved back above and then below, and back above, and again back below this average, showing the fierce action between the bulls and bears in the gold market. Again note the failed attempt to break above the 50 line on the RSI.

What does it all mean?

As you can see, after the correction in gold ended in the mid '70's, the gold bull stampeded and ultimately ended in a final phase 3 mania or blowoff to the upside, which is how all secular bull markets end. Investors, who are long-term oriented, should be purchasing physical gold and silver and continue to do so on any further declines.

Investors in gold mutual funds should add to positions in their respective funds on any further significant drops in the HUI, should any materialize. Those trying to time movements in and out of gold funds should remember that the HUI peaked at around the 260 level and currently trades near the 180 level or roughly 80 points off the highs, so jumping in and out of a gold fund at this point doesn't leave much room for error.

"It was never my thinking that made big money for me. It was

my sitting...

Men who can be both right and sit tight are uncommon.

I found it one of the hardest things to learn."

~ Jesse Livermore ~

What the lessons of the gold bull market of the 70's should teach readers is that if you indeed believe as I do that we are in a secular bull market in gold, then you will be greatly rewarded when you buy during significant pullbacks. In a world dominated by fiat money, gold is the metal of kings. It has been that way throughout history and it will be that way again.

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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