INVESTING: Steep retreat in gold prices gives commodity an allure

Our culture is easily distracted. Shiny things grab our attention. Gold’s luster doesn’t change, but our perception of the shine apparently does. After gold suffered for 20 years in a protracted bear market, we became mesmerized by the stuff, running the price from $250 an ounce to $730 in seven years. I guess when we do decide to focus, we really turn up the heat.

But then gold in late spring suffered a sharp 25-percent correction in only four weeks. A move like that is enough for you to look down and make sure all your extremities are still attached.

After making sure all your fingers and toes check in OK, it’s time to ask, “What’s next?”

Just about every major commodity participated in that 20-year bear market mentioned above. Silver probably took the most extreme hit, dropping from $50 an ounce in 1980 down to under $5 by 1999.

Believe me, when stuff falls that much, people lose interest. And when people lose interest, production practically disappears. Then, when users start asking for these commodities again in bulk, it takes a long time to satisfy the demand. After a 20-year beating, commodities may be in store for a rebound that lasts a few decades. And gold could be one of the leaders of the move.

The long-term outlook for gold is rising, in part because of strong consumer demand in Asia. Shorter term, though, there’s little reason to rush to load up on gold. A simple idea is, if you don’t have any, buy a little now and wait.

The pullback in gold prices was violent enough to warrant a few months of consolidation, and perhaps slightly lower prices. Gold is now around $629 an ounce. We could see $500 an ounce by the fall, and if it does get there, that might be the time to back up the truck. It would be reasonable to see gold hit $3,000 an ounce in the next 10 years. That kind of potential should keep our attention for a while.

Better times for Lilly?

Eli Lilly and Co. shares have done nothing for close to a decade. I think that might be changing, though. The stock has been one of the better performers since the May bottom, and it might be close to breaking out.

Investing in this stock requires a high tolerance for risk, and a willingness to change course quickly. Breakouts in bear markets can be tricky.

For my purposes, I am using a trading rule that has a high degree of accuracy. If the stock trades above $55.08 soon, which is the highest point in the last 55 days, I will buy some shares. There’s a lot of resistance at $60, and if it clears that, it may reach the low $70s.

That would be about all I would expect, however, given that the industry continues to trend lower. It would be nice, though, to see the hometown favorite do well for a while.