Extreme levels of work-for-Gold ratio

How many hours of work would it take to purchase one ounce of gold? Now you’ll know.

Interesting, right?

The 1980 peak still reigns

Gold price truly peaked in the 1980, and while it moved to new nominal highs in 2011, this wasn’t the case in terms of how much one would have to work for it. In 2011, gold peaked slightly below the previous high. This year, we saw another move to those extreme valuations, but once again turned south slightly.

Has gold reached its medium-term peak? The above chart makes it likely. Gold – more or less – reached the price levels at which, when compared to the average hourly earnings, it used to reverse.

If this was just one thing pointing to that outlook, one might ignore it… But it isn’t.

The more angles one uses to look at a given market, be better quality of forecasts they can make. So, let’s take a look at gold from the European perspective.

Gold price in terms of the euro had rallied substantially in the previous months, but based on the RSI indicator it rallied too far too fast, and it now needs to correct or decline in a more profound manner. That’s simply how the markets work. No market moves up or down without periodic corrections. Gold is no exception.

Zooming in, we see that last week gold reversed in a profound manner last week.

A turning point?

Gold ended the week $16.20 higher than it had opened it, but it matters little compared to the fact that on an intraweek basis, gold erased almost $100 (declining from $2,761.30 to $2,675.80). In other words, we saw a profound weekly reversal; and it wasn’t profound just because of the size of the price swings – the high volume confirmed it.

Gold moved quite close to its yearly high, but it didn’t reach it. By the way, I’m not sure if you know, but one of the new experts on Golden Meadow – Rick Ackerman – forecasted $2,803.40 as the likely top for gold on September 12, when gold moved past $2,576. Gold topped at $2801.80 – almost exactly at Rick’s target.

Getting back to the current situation, do you know what else confirmed the reversal? Pretty much every other part of the precious metals market. At least the ones that are meaningful with regard to outlook.

The GLD ETF reversed, but it’s normal since the price of the ETF is directly linked to gold’s performance. However, it was not obvious that both: silver and gold stocks would create analogous reversals – and they did.

Oh, and platinum and palladium formed weekly reversals, too.

With all this, should one really expect gold to rally in the following months? I don’t think so. Perhaps gold itself doesn’t “think” so either, as last month was the first month in a long time when gold declined. And it’s down in December as well.

Now, do gold, silver, or mining stocks need to fall right away? Absolutely not. (And even if they do, there are ways to earn money on gold while you simply hold it.)

This is the FOMC week, and the interest rate decision is due on Wednesday, and the same goes for the press conference. Before that, the markets may move erratically. The Fed is widely expected to cut rates, so when that happens, we may see an immediate move up that’s followed by the “buy-the-rumor-sell-the-fact” decline. Or we might see some post-decision volatility. But the important thing remains intact – the medium-term indications favor lower prices in the following weeks.

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