Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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