Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
It’s Official: The Global Real Estate Bubble is Finally Bursting! - 30th Aug 16
7 Things to Remember When Inflation Returns - 30th Aug 16
The Pro Hillary Supporter Challenge - 30th Aug 16
Semiconductor Stocks Sector, Updated - 30th Aug 16
Stagflation to Force People into Gold - 30th Aug 16
Late-August Calm a Breeding Ground for Gold Bullion Bank Shenanigans - 30th Aug 16
Stock Market Long View - 30th Aug 16
Fundamentals for Uranium look great; is the Uranium Market ready to soar? - 29th Aug 16
3 Ways to Profit from the Stressed-Out American Consumer - 29th Aug 16
Have The Markets Become Too Big to Fail? - 29th Aug 16
Pakistan Booming House Prices Housing Market Mania Kabza Mafia Warning! - 29th Aug 16
Post Yellen = Market Confusion - 28th Aug 16
Theresa May Instructs Police, NHS Gp's, Public Sector To Stop Racial Discrimination in Service Delivery - 28th Aug 16
Ignore Yellen and Buy the Dip in Precious Metals - 27th Aug 16
SPX Downtrend Should be Underway - 27th Aug 16
Unraveling the Secular Economic Stagnation Story - 27th Aug 16
The Precious Metals Sector and the Fed. . . - 27th Aug 16
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy - 3 Secret Charts

When Will the Gold Bull Market Turn Into a Mania?

Commodities / Gold and Silver 2011 Jul 19, 2011 - 09:03 AM GMT

By: Aftab_Singh

Commodities

Best Financial Markets Analysis ArticleAs our readers may know, we’re suckers for the theory that markets move in generational cycles. The basic idea is that the knee-jerk reaction is often the strongest one and that investors have a tendency to ‘stick to what they know’. The length of the prime of one generation’s career seems to be a suitable period of time for such ‘things that people know’ to become firmly lodged. Ironically, such lodging is a dire circumstance in a business that amounts to pseudo-futurology. 


More specifically we might say that investors often become convinced that strong and persistent price trends of the past are a matter of permanence (particularly if the entirety of their career confirms that intellectual conviction). Extrapolation is the name of the consensual speculator’s game, and so, anti-extrapolation must be the name of ours! Timing, as we all know, is incredibly difficult when it comes to the speculative financial markets. However, here I’ll endeavor to speculate as to when the gold bull market might go into ‘mania mode’.

[NOTE: If you already believe that we've reached this 'mania mode' with respect to gold, I invite you to read this (and this) and to listen to this interview with Marc Faber.]

Who’s In Charge?

Ok, so if we’re to deal with timing in terms of generations, then let’s quickly think about whom we’re dealing with. With the assumption that the prime of a person’s career spans from around 25 years old to 60 years old, we can assume that the majority of people in the investment business were born between the years 1950 and 1985. Moreover, most of the guys that are managing portfolios of assets (35-55 year olds) probably began their careers between the years of 1975 and 1995.

The Parabolic Price Rise of the Late-70s and Early-80s:

And so it is revealed that the older proportion of today’s investment community witnessed and probably got caught up in the mania of the late-1970s to early 1980s! As can be seen from the charts below, the price of gold went parabolic during that period:

Gold Price Since the Early 1930s

Source: World Gold Council

The Implications of the Price Spike – Rationalizations for Avoiding Gold:

Moreover, combine that early folly with the fact that gold took out its 1980 high only a few years ago. For a long time, there has been a supposedly practical ‘justification’ for avoiding gold. Gold – they say – ‘does nothing‘. In 1990, the investment community could have said that ‘gold has collapsed for a decade’, in 2000 the investment community could have said that ‘gold is useless, and always goes down’, and in 2010 the investment community could have said that ‘gold – the supposed inflation hedge – has declined in real terms over the past 30 years’.

The Platform to Repeat the Mistakes of the Generation Above…

The assumption that we put forward is that the older proportion of the investment community is unlikely to repeat the mistakes of its early-years. So, as a matter of timing, the gold mania may only arrive once their collegial descendants have the platform to repeat their mistakes. That is, once the guys who lived through the gold bubble have stepped down from managing the major investment portfolios of the world. So, if the older proportion of the investment community began the primes of their careers in 1975, then perhaps we need another 5-10 years to see another epic mania in gold!

If you’re skeptical about this notion, then I urge you to consider the following: After the epic housing bubble experienced in the US in the past decade, and the subsequent collapses of illusory fortunes, do you really expect the same people to make the same mistakes in the primes of their lives? I would suspect not. I would suspect that the wounds from that epic fall from grace would remain for years and years to come. [That's not to say that house prices won't rise, but rather that they're probably not going rise parabolically for at least another generation.]

Gold represented a similar folly. As Marc Faber said in a recent interview, (paraphrasing) ‘During the gold mania of the late 1970s, the whole world was watching gold day and night‘.

Conclusion:

Seemingly, nothing is more compelling than experiences of the past. Here in 2011, this brings about a peculiar scenario where the investment community is divided between people who’ve ‘seen the follies of gold’ and people who have not. In order to relive a 1970s-style adventure in the gold market, we might have to wait another 5-10 years. Only then will the investment community consist of people who had not been burnt by the events of the late-1970s and early-1980s.

In the meanwhile, we should be patient, observant and vigilant to the progression of our valuation methods. Hopefully, if we remain contrary in our thought, we’ll be able to spot the opportune times to sell.

Aftab Singh is an independent analyst. He writes about markets & political economy at http://greshams-law.com .

© 2011 Copyright Aftab Singh - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife