Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Pass the Gold Bull Market Test

Commodities / Gold and Silver 2011 Aug 30, 2011 - 04:01 AM GMT

By: Bill_Bonner


Best Financial Markets Analysis ArticleLast week in the financial markets was unsatisfactory. No clear trend announced itself. The Dow should have gone down. Gold should have gone down too. But they diddled around…and on Friday, both seemed to be back in counter-trends, moving against the direction we think they OUGHT to go.

As for stocks, everything we’ve found out about the economy since 2007 suggests that our Great Correction view is right. This market aims to correct something; we just don’t know what.

Whatever it is doing, it is NOT responding in a typical post-war recovery manner. The feds have pumped trillions into the economy. They’ve gotten nothing for it except more debt.

Which was just what they DIDN’T need. The real problem – or at least the most obvious problem – is too much debt. Adding more, the feds aren’t doing anyone any favors, except the banks themselves.

It’s just a matter of time before investors realize that stocks are not worth prices in the top of the range. In a correction, they’re worth prices in the bottom of the range. And eventually they should fall to the very bottom of the range…where you can buy the entire Dow group for only one ounce of gold.

But that is still a long way away. And in the meantime, what about gold?

Well, bull markets – like lovers – always test their admirers. Remember the stock market crash of ’87? Stocks had been rising for five years. Then came Black Monday. The Dow lost 508 points in a single day. By the end of October, the Dow had lost nearly a quarter of its value.

Naturally, a group of 30 prominent economists got together and made fools of themselves. They announced that “the next few years could be the most troubling since the ’30s.”

And naturally, faint-hearted investors failed the test. They left the stock market – fearful that another Great Depression…or maybe a repeat of a ’70s-style slump…was coming.

When the crash was over, the Dow stood at only 1,738. Investors who had bought stocks 5 years previously were still up 70%. And the bull market had scarcely even begun. Instead of going down, stocks rallied…and never looked back. The Dow rose to over 11,000 in January 2000 – the most spectacular stock market success story in history. The economy, too, roared ahead.

Stock market investors may anticipate a replay of that post-crash world. They’ll be disappointed. Our world today has nothing in common with 1987. To make a long story short, then we were coming out of a long bear market. Now, we are coming out of a long bull market. Then, we were at the beginning of a long bull market in bonds. Now, we must be near the end of it. And then, households and the government could still borrow in order to keep spending. Now, the private sector is played out; government continues to borrow at record levels….but that’s a different story.

The last bull market in gold tested its admirers too. The price had risen from $41 an ounce – when Richard Nixon cut the last link to the dollar in August ’71 – to nearly $200 in 1975. Thereupon began a sell-off, in which gold lost 40% of its value…coming to rest around $100.

Weak sisters, johnnies-come-lately, and camp followers got shaken out. They gave up on gold at $100 an ounce…before it began its real push to the top, which eventually put the price over $800.

Our guess is that this bull market in gold will test its admirers too. So far, it has closed every year higher than the last. Making money was easy. Our faith was never seriously challenged. Even now, the price of gold is close to $1,800. It’s still ahead for the year. It’s still in its upward channel, well above its 160-day moving average.

Gold is still a winner. Gold investors are still winners. There is no reason to doubt that they will be winners this year…just like they have been every year this century.

But that’s not how it works. Not usually. The gold market needs to make its admirers feel like losers. It needs to cause them to wonder…and question their own faith and judgment.

How so? By letting the price fall to…$1,200…or even $1,000. Then, we will be ready for the third and final stage of this great bull market.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

    © 2011 Copyright The Daily Reckoning, Bill Bonner - 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.

© 2005-2022 - 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