Glimmers of Hope Amid the Worst Gold Miner Secular Bear Market in History?

2018-08-25 · by · in Bear Market, Cycles, Gold Miners, Historical Analysis, Sectors, Technical Analysis

GFD has a FTSE-JSE Gold Mining Index that dates back to the 1800s.  Within that data I count three major secular bear markets:

  • 1888-1931 (~42 yrs)
  • 1946-1971 (~25 yrs)
  • 1980-Current (~38 years)

In USD-terms I analog index price data for each of the secular bears below; black is the current secular bear:

Numerous items stand out on the analog above.

  1. This is the worst secular bear on record in terms of price decline at ~93%
  2. This is the second longest secular bear on record, 44 months shorter than the longest and ~150 months longer than the other
  3. The previous two secular bears end with a noteworthy pivot low, large rally, but a final, lower low to finish the cycle
  4. A lower low for the current cycle implies prices fall below 2015’s lowest point of 60; very long-term support runs to the lower-to-mid ~50s vs. the current 66, or ~15-20%% lower

The index’s price data originates in ZAR.  If we take a look in those terms instead of USD, we similarly find that 90-yr support is somewhat lower than current levels, also about ~15%-20%.  2015/2016’s swing lows in miners saw us almost reach this support, but not quite, implying the need to do this moving forward before a durable low is in place.

Even so, the support that’s coming into play is historic in nature and was created at the index’s 1931 secular lows as the Great Depression begins (followed two years later by FDR’s E.O. 6102 in 1933) and its 1971 secular lows as Nixon abandons the gold standard.  Needless to say: massive secular bulls in miners – as well as huge shifts in the global monetary system – began at this support.  To reiterate, the chart below is in ZAR terms (the fact that the index is down 93% in USD terms but far less in ZAR terms implies the likelihood for far greater appreciation in USD terms as the next “big” secular move in FX will likely be USD weakness, EM-FX strength).

Perhaps the most important take away is that within ~three-four years of both the 1931 and 1971 lows in the index above, gold miners had risen by a factor of ~6x.

Stand by and be prepared as ~90-yr support begins to approach as a truly historic pivot in gold miners is not that far off…