A couple of weeks ago I pointed out that the Accumulation Distribution Line (ADL) for silver was showing significant upward pressure on the price of silver. Below you can see that we have the same situation in gold.
What’s interesting about the ADL is that it is a purely calculated value. It has no subjective component or anything related to market fundamentals. Yet even though the price of gold has been going sideways for almost a year now, the ADL has been steadily rising. The calculated ADL is reflecting the underlying long term bull market that is consistent with the fundamentals.
If you think of the ADL as representing the true market value of gold, then it is easy to see that when the price got ahead of the ADL, it either came down to meet it, or waited until the ADL rose to match it. When the ADL indicated that gold was oversold at the beginning of 2012, it was followed by a sharp rally ($200 in one month).
But, what is most intriguing about the chart is that the ADL is indicating that gold is extremely undervalued at this point. And with the market starting to show some signs of life, it could possibly be the start of a significant rally this fall. Maybe even one that takes us to the threshold of $2,000.
Thanks, Paul, for the interesting essay. But why was the title in the form of a question? Either you personally believe, based on your analysis, that “a new all time high” is coming soon, or you don’t. Take a stand, man.
great evaluation , a tribute to the economy and also the election coming up . totally agree that it looks like a all time new high is coming and soon
Your graph really helps me put things into perspective. I’m a self-taught novice investor whose portfolio is cash-heavy right now – not a good place to be considering current events. It hit me today that over the past month, I would have made over 2,200 times the gain I actually did if my cash segment were precious metals instead. Keep up the good work, and feel free to let me know if you have any special pointers for a college dude and newb investor! 🙂
This isn’t a novel idea; however, I think 2015 will be a strong year for gold due to the increased demand from foreign economies, i.e. powerful emerging economies in Asian financial markets.