Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Anatomy of Future Gold and Silver Price Bubble

Commodities / Gold and Silver 2012 Jul 24, 2012 - 11:10 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleIn recent commentaries we've written about the three phases of a bull market and how and why the final phase evolves as it does. Valuations, sentiment and market structure all explain why markets take a dramatic upward turn in the final phase after relatively stagnant performance in the previous phase. These are the "micro" behind why a bubble emerges in the final phase. Today we want to look at the intermarket driving forces behind the emergence of a bubble.


We often write about intermarket analysis, which is an incredibly useful and actionable form of technical analysis. The greater the bubble, the greater role intermarket relationships play in the formation of the bubble. Essentially, for a large market to form a bubble, capital needs to flow out of various asset classes and into that particular market.

Here is a quick example of the technology bubble in the 1990s. We plot the Nasdaq, Bonds and Commodities (the three major asset classes). The Nasdaq accelerated from 1994 to 2000. In the same time period, Bonds were volatile but didn't make much progress. Commodities were in a nasty bear market from 1996 to 1999. Note that Bonds surged from 1990 through 1993, a period in which the Nasdaq climbed slowly. Furthermore, from 1993 to 1996, Commodities experienced a very strong bull market.

NASDAQ Composite

The takeaway is bubbles cannot occur when the asset classes are challenging each other for supremacy. Let's quickly review the parabolic move in Gold, Silver and mining equities from 1976 until 1980. Interest rates soared in that period (Bond prices declined) stoking greater fears of inflation. Meanwhile, the S&P 500 peaked in Q3 1976 and didn't bottom until Q1 1978. Overall, precious metals faced little competition in the late 1970s from conventional heavyweights: Bonds and Stocks.

Presently, the strength in each major asset class is holding Gold back. With both performing well, who needs Gold or Commodities? However, the long-term outlook for Stocks and Bonds is not good. The S&P 500 is nearing major resistance at 1500-1600. Also, the shortest bear market on record was 13 years (1929-1942). The current bear market looks far more similar to the 1966-1982 and 1900-1915 bear markets. Furthermore, the current PE ratio is 14. The bear market will not end until that reaches single digits in the coming years. Moving to Bonds, we note a powerful breakout from a two and a half year base. Bonds can move quite a bit higher from here but we'd be wary of a blowoff top in the next 12-18 months.

S&P 500

We believe there is plenty of legitimate demand for Bonds. The economy is slowing and people are generally scared. Also, if you are part of a large institution managing millions, you rely on Treasuries for their safety and liquidity. However, consider that foreign purchases are declining and supply will balloon in the coming years.

US Treasuries Purchases By Foreigners

As Chris Puplava shows, supply is going to increase dramatically in the coming years as debtor nations have to rollover trillions in debt. Chris writes:

Looking at the outstanding debt for the top 10 combined shows that just between now and the end of the year more than $5 trillion in debt will mature, or 17% of their total outstanding debt, and by 2015 nearly 50% of the top 10 debtor nations total outstanding debt will come due.That is more than $15 trillion in debt coming due in the next two and half years!

One important point we need to remember is that the majority of gains in a bull market come in the last phase. The Nasdaq gained 5-fold from 1982 to 1994 and then surged more than 7-fold in the last six years. Gold and Silver in the late 1970s is another example. There are a handful of data points that support (on a historical basis) a parabolic move in the coming years.

The following chart shows how much Gold would have to rise to back the monetary base. However, an updated calculation puts this at $10,000/oz!

US Gold Reserves versus Monetary Base

Moving along, we see that Gold relative to equities (S&P 500) has significant room to advance if it is going to near the 1980 bubble level. Note where the ratio was in 1977.

Gold versus S&P500 versus 1968

Presently, Gold is struggling to find demand as Bonds and the S&P 500 remain in bull markets. However, we believe the cyclical bull market in equities will soon come to an end and that the secular bull market in Bonds could form a major peak in the next 12-18 months. Gold and hard assets have been in a bull market for nearly 13 years. Barry Bannister's research shows that bull markets tend to average 16-18 years. Steven J Williams at CyclePro shows that adjusted for inflation, each equities cycle is about 17 and a half years. The present bull market could very well end in 2017 or 2018. This is at the most, six years away.

It could take several months for the S&P to peak and perhaps a year before it falls into a mild cyclical bear market. Meanwhile, it could take months or perhaps a year for Bonds to make that major peak. Regardless of the near-term, the outlook over the next few years is clear. Conventional assets will struggle and fall out of favor at a time when accelerating debt monetization and money printing will thrust Gold, Silver and hard assets into the mainstream. That is why now is the time to take a serious look at Precious Metals. In our premium service we focus on the producers and explorers best positioned for and most likely to take advantage of the inevitable next leg up in this bull market in precious metals.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2011 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

© 2005-2019 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

6 Critical Money Making Rules