I've been noticing on many of the message boards for the mining companies I follow that folks tend to get nervous when the price of gold pulls back. They begin wondering if they should sell their mining stocks and take their profits. They ask questions like, "Is the bull run over for gold?" and other such nonsense.
Just out of curiosity, I went back to the data from the greatest bull market in gold in modern history (the Big One from mid-1977 to January 1980) and did a study of the day-to-day change in the London PM fix price for gold. Here's what I found:
Out of a total of about 655 trading days from the low in mid-'77 to the peak in January '80, there were 370 trading days in which the London PM fix was higher than the previous day's fix and there were 285 trading days in which the fix price was lower than the previous day's fix. In other words, even during the greatest modern-day bull market gold has ever experienced, nearly 44% of the time, it was trading lower from the previous day's fix price. That's about two trading days every week that traders witnessed a lowering of the price of an ounce of gold from the previous day's action.
Additionally, there were five months during that 31-month run-up in which the average price of gold was actually lower than the previous month's average. No doubt people were wondering at that time, "Is the bull market over?". Even as late as August 23, 1979 the price of gold was only $310.05. But only about 20 weeks later, the price of gold had skyrocketed to its peak of about $875 per ounce -- a 180% increase in fewer than 5 months.
Think how tempting it would have been to sell out when gold hit, say, $400 (keep in mind that at the beginning of that bull run, the price was a measly $137.50), only to watch with regret and frustration as it continued exploding upward past $500, past $600, past $700, and, finally, past $800 per ounce!!!
The lesson is this: it is in the latter stages of bull markets where most of the money is made, and we’re only in the early stages of this one.
I found it interesting that on May 15th, 1979 the price of gold was set at about $256 per ounce. The price had risen about 86% from its mid-'77 low. Not bad, of course, but not exactly the stuff of goldbugs' dreams, right? However, by the end of the year, a mere 7 and 1/2 months later, the price of gold had doubled to $512. Then, within about three weeks of that, the price shot up an additional 70% to its peak of about $875.
The point is, even in the best of bull markets, nearly half the trading days will be "down" days.
In addition to folks who follow the gold market complaining about the number of days gold is "down," I also hear many naysayers on the message boards proclaiming, essentially, that "gold hasn't been able to break into new highs." Or, "the last high is now creating impenetrable 'resistance' " -- that sort of thing.
Being the skeptical type, I went back once again and examined the data from the greatest modern-day bull market gold has experienced and I counted the number of days when gold was not only up but also made a new high. This time, just to give the whiners and pessimists a fighting chance, I went back to the very beginning of the Big One (which culminated at $875 in January 1980). That bull actually had its earliest roots after the low of $103.50 on August 25, 1976. I started there figuring that, after the extreme bottom of the cycle, there certainly would have been a larger percentage of days when gold set new highs.
Counting forward from August 26, 1976 (the day after the lowest low) to the very top of the cycle nearly 3 and 1/2 years later on January 21, 1980, there were about 744 trading days. Care to guess how many trading days out of each 100 gold was able to set a new high? You may be surprised at the answer: a mere 20.
That's right: in the most power-packed bull run ever witnessed in the gold market, gold managed new highs only 20 days out of each 100. And that was, as far as we know, without having to contend with the Cabalistic antics we "moderns" have suffered.
This fact shocked me. To illustrate with one quick example from those days: gold set a new high for the move on November 15, 1976 at $138.85 per ounce (all prices using the London PM fix). From that day, gold traded lower the remainder of the year and for more than three months total, failing to reach a new high until it hit $139.15 on February 23, 1977.
This brings to mind a favorite saying of one of the world-class traders of all-time, Jesse Livermore, who used to confidently proclaim: "It was never my thinking that made me money, but my sitting tight… Be right; sit tight!"
In the investment game, as in most other walks of life, patience prospers...