I’m not a fan of financial or monetary charts. Given that the data on which these charts are based are typically received from the government, and given that the government routinely lies about economic data, I can’t see how anyone can reasonably place significant reliance on charts.
I prefer to try to identify fundamentals. I look for long-term trends whose power I deem to be irresistible. Insofar as I can identify such trends, they may not tell me what the price of gold, or the unemployment rate, or the inflation rate, will be next week, but they’ll give a clue as to whether those numbers will be up or down a year from now. I’m more inclined to invest in trends that should be good for the next several years than I am to speculate (bet) on technical changes that might be reported in the next week.
But here’s a chart published by Chris Martenson, CEO & co-founder of Peak Prosperity and a long-time gold bug. The chart makes sense to me and is compelling. I’ve seen other chartists talk about “flag” formations in the past. They explained that the price of gold has been making a “flag” for the past year, and that such “flags” typically precede a major price change. The price change could be a big increase or a big decrease, but in the case of gold, a big increase is expected.
Until now I didn’t have enough brains or background to appreciate the “flag” argument–largely because I only saw “flags” one “flag” at time. But his chart shows a history of five “flag” formations in the past four years. That “history” makes the flag concept more easily understood and convincing.
This doesn’t mean that I now trust all charts and technical analyses of the price of gold. But I look at this chart and say, “Yeah, this makes some sense”. I not only see the flags’ “history,” I see that current flag is a monster compared to the previous four. The sheer magnitude of the current flag suggests that a huge price change is possible for gold. Mr. Martenson’s predicted $2500 gold is clearly possible and might even be understated.
More, when you see the previous four flag formations and subsequent jumps in the price of gold that took place in less than three years, it implies that after a flag formation finally breaks, the next big high in the price of gold will be reached, on average, in about six months. That implication proves nothing, but it does suggest that if and when the current “monster” flag breaks, we could see $2500 gold in less that six months. If so, that’ll be an exciting time for those of you who own gold.
Here’s the chart: