A Monster Five Year Gold Stock Run!?!

Prepare For A Monster Five Year Gold Stock Run

By David Banister | 3 August 2009

[ Normxxx Here:  I agree with this article, in general, although I think he is just a wee bit wearly on the breakout. But, I could be wrong, and while I have only a minimal investment in my gold stocks trading allocation here, I still have a substantial holding in my core PM stocks and core 'physical' (via GLD and SLW  ]

For those who don't know me, I am a firm believer that markets and sectors move almost entirely based on human behavioral and/or "herding" patterns. I wrote an article in late February of this year outlining why I thought the market was about to start a bull cycle, and yet nobody knew it. Perhaps I got lucky, but that turned out to be accurate and then some, and it was certainly not based on fundamentals either. I couldn't find one solitary bull around the world, so I knew there was a good chance things were about to shift sentiment wise, and therefore market wise.

Speaking of behavioral patterns and possible shifts, let's discuss the gold sector and why I believe the third leg in the Bull market in gold is just beginning, and it is about to accelerate. If it's true that markets move based on reliable behavioral patterns, then gold and therefore the Gold Stocks are poised to have an extremely bullish shift in sentiment in my opinion. Most secular bull markets move in Fibonacci periods of time, (3, 5, 8 ,13 etc.)— measured in years not weeks or days.

The tech bull market began around 1986 in my opinion when Microsoft went public. That bull moved in a thirteen year Fibonacci cycle peaking out in 1999. However, to get there we had to pause after a five fibonacci year run into 1991. There was a three Fibonacci year pause, and then another five year run to the 1999-2000 peaks. That is a Fibonacci 5-3-5 pattern that is obvious to me in viewing the gold sector now.

Those first five years of the tech bull pulled very few participants along with it, just the 'early investors'. Secular Bulls rarely bring along too many investors in the first stages. Just as the crowd started to get excited and interested in tech stocks again, a Fibonacci three year period of choppy trade ensued, with no net gains. This was during the 1991-1994 period, culminating in a federal reserve cranking up interest rates seven times in that year alone.

By the end of that three year period everyone was bored with the tech sector and had given up on it. This of course kicked off a five year run that culminated in the Nasdaq hitting just over 5000 in the Spring of 2000. You see, bulls 'like' to kick as many investors off along the way up as they can. But, at the very tops of these herding patterns, everyone is bullish and grandmothers are emptying their savings accounts at the local bank to buy stocks selling at 200 times annual sales with no profits.

Well, the gold sector has displayed the same patterns from 2001-2009 so far as the tech sector boom from 1986-94, before its final five year run up into 1999-2000. We are in the eighth Fibonacci year of this thirteen year cycle up, and a shift is about to take place. I identified what I thought would be the early stages of a thirteen year gold bull in late 2001 when I started putting my clients into the Oppenheimer Gold fund, along with Emerging Market Funds and Natural Resource Funds.

I remember telling them the following, "I know I probably seem like a nut, but these sectors are poised for a huge bull market and they have been out of favor for way too long, let's put 20% of your portfolio in this area". The gold funds did well for five years from 2001 to 2006, averaging around 30% compounded per year. They have paused for three years more or less in another up and down choppy fashion from 2006 into 2009. As we came into the spring of 2009, every time gold pulled back under $900 you could read the consensus view about 'the end of the gold bull'. This brings us to the present day, the summer of 2009.

My chart patterns are displaying as I type, viewing two huge bullish reversal indicators at the same time. I call this a convergence of sentiment shift indicators. A massive reverse head and shoulder pattern, complete with a current triangle pattern in gold is evident. These are huge warning signals to get long— and soon.

The final five years of this huge bull market in gold is about to kick off. In fact, it's probably already started in case you haven't noticed. The fun is about to begin, if you're long, because the final five year leg will eventually drag everyone into the mix— pushing stocks to obscene valuation levels you can't even imagine now. The moves in the microcap exploration stocks since earlier this year should be opening your eyes. I have my favorites, but I will let you do your own due diligence on that end.

I'm including two of my GLD charts which were delivered to my Active Trading Partners group Sunday night. These weekly charts both outline what I believe is a near term explosive move to the upside. This will kick off the sentiment shift to bullish and, after the five year window is over around 2014, extremely bullish. To paraphrase the inimitable Robert [Bob] Hoye, "the party will be on" in due course. I believe the SP 500 index will run up to about 1,200 or so before a good, corrective pull back. Along the way, this first leg up in the five Fibonacci year bull run oughta be pretty profitable, well outpacing other indexes.

suggest you may want to overweight the sector soon.

David Banister