Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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.


© 2005-2014 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

Free Report - Financial Markets 2014