Dow theory suggests the worst is over for gold – and South Africa Inc
By Alec Hogg
A century ago Charles Dow promoted a theory that investment markets moved in definite cycles. His conclusions were published in the newspaper he founded, the Wall Street Journal – and are still followed by disciples of the famous Dow Theory.
The theory is grounded in behavioural economics. And can be applied on a broader stage than financial assets, suggesting much of life goes in cycles determined by broad emotion: the upswing starting with optimism causing excitement and topping out at euphoria.
Subsequent downturns begin with anxiety followed by stages of denial, fear, desperation and panic. A trough is eventually hit after the points of capitulation, despondency and finally depression are reached – followed by a new cycle triggered through hope, then relief, then back to optimism.
Gold bugs reckon the bullion market hit the depression stage last year, with 2016's gain of 24% in the yellow metal's price suggesting we've passed hope and are now into relief. After a horrible decline, South Africa Inc appears to be following a similar path. Hope Springs.