Update: Long-Term Trends for the Dollar, Gold, Silver and Precious Metal Stocks
It’s an excellent idea to look at the long-term charts of the investments you own or are considering.
From time to time, we do look at the long-term trends of the markets, and the investments we’ve recommended and follow.
You can learn a lot by analyzing long-term charts: is the investment cyclical, is it in a long-term uptrend, a long-term down trend, where are major long-term support and resistance levels, are prices stuck in long-term trading ranges.
Below we look at the long-term price trends of the dollar, silver, gold and precious metal equities.
Theoretically, a falling weak dollar is bullish for gold because gold is denominated in dollars and it makes it cheaper for global investors to buy, and investors need a hedge like gold if a currency/dollar is falling to protect the purchasing power of your currency/dollar.
The opposite is true if the dollar is rising.
Below is a long-term chart for the dollar:
If we take out the highs and lows of the dollar, we see that the dollar has mostly traded from 80 to 97. The dollar has fallen back, and is now at the top of its long-term trading range, around 95.
The dollar’s decline started with the terrorist attacks on the U.S. on 9/11. The other main causes of the dollar’s accelerated descent includes: the popping of the housing bubble, the financial crisis of 2008, the Great Recession, and the Federal Reserve’s quantitative easing (money printing).
The strong dollar of the 1990s was mostly due to the digital, technology revolution that created lots of wealth and growth for the U.S. economy.
Past strong economic growth were often associated with major new technologies, industries: autos, aviation, electronics.…
Below is a long-term chart for gold:
Gold was stuck in a trading range for many years, from $250 to $400. The trading range is called basing, a consolidation period after the bear market of the early 1980s.
In the late 1990s central banks around the world were selling their gold reserves putting downward pressure on gold.
The black solid trendline is the bullish long-term trend for gold, and prices remain above the bullish long-term trendline.
Prices accelerated and prices have pulled back to the dotted trendline.
It was easy for gold prices to break the first accelerated trendline. The trajectory was not sustainable.
There are many reasons for the gold’s bull run:
- 9/11 crisis, and the start of the descent of the dollar.
- The cost to find and produce (royalties, leases, environment cleanup, labor, equipment) gold keeps increasing.
- Part of the increasing cost is the remaining supply is more difficult and expensive to extract and produce.
- Strong demand for gold
- Gold ETFs were introduced making it easier for investors to buy gold. Gold ETFs became very popular.
- The financial crisis of 2008
- Federal Reserve’s quantitative easing, money printing
Some of these trends have reversed (end of quantitative easing, rising dollar, lower demand) causing gold to fall.
Below is a long-term chart for silver:
Silver does have some of the same price action characteristics as gold: trading range/basing for many years (without central bank selling), followed by a strong bull market and selloff in prices.
What is different for silver is the dramatic increase from about $5 to almost 50 dollars, about 900% times. Gold did well, about 700% times from its bottom.
Silver’s fall was much more than gold.
The parabolic move of silver was not sustainable, and the trend was very easy to break.
Silver could be a good trading vehicle because its moves are more dramatic and its moves are more on a percentage basis.
Precious Metals Index, Symbol XAU
The XAU is an index of gold, silver and precious metal companies.
Below is a long-term chart for the XAU:
The XAU has lost all of its bull market gains.
There are many reasons for the poor performance for precious metal companies: bad management, bad acquisitions, too much debt, bad allocation of capital, rising expenses, labor strikes….
We’re not surprised this has happened, we’ve written many times that we prefer to invest and own gold and silver versus precious metal stocks.
Precious metal companies need to find their bottom, and then they need to base ( a consolidation period after finding a bottom in a bear market).
Most basing periods last about seven months, but they can last for years as we’ve seen with gold and silver.