The Gold Report: You sent us a graph that charts gold’s downtrend in bear markets since 1975–1976. That chart suggests that some bear markets end in a capitulation selloff, while others build a base for an extended period. How is this bear market trending?
Eric Muschinski: Due to the duration of the current bear market, we are more in a “grinding” bear market, which doesn’t necessarily mean that we’re not going to have a capitulation selloff at the end. In 1975–1976, for example, there was a harsh mid-cycle flush, so it was painful and brief. The 50% drop in the price of gold was actually more severe than what we are seeing now. But if this is a mid-cycle correction, we could see a similar percentage decline to what we saw in the mid-1970s. The current grinding bear market just exceeded the 1996–1999 bear—the second-worst bear market in both duration and severity. Only the 1988–1993 bear market, which we’ve already surpassed in severity, lasted longer.
This analogue is designed to follow correlations of different historical bear markets over the last 40 years. The analogues help us track how the gold price might bottom into the final low. Since an asset corrects in both price and time variance, it is important to notice that some bear markets end in a capitulation sell off, while others build a base for a prolonged period of time.
TGR: What else should investors know about that chart?
EM: For me, it helps to look at facts and data instead of the emotional side of investing. Anyone who has been in the precious metals sector has been brutalized for the last four years. Our perception can be skewed in that environment, and it can work against us in the sense that investors become complacent or …read more