Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

The Gold Bull Market Is Back... Will It Last?

Commodities / Gold and Silver 2016 Mar 09, 2016 - 05:51 PM GMT

By: MoneyMetals

Commodities

Stefan Gleason writes: The gold bull is back. After trending downward for more than four years, gold prices have broken out to the upside with a gain of more than 20% off their December lows.

Gold’s crossing of the 20% threshold even caused the financial media to take notice. “Gold is now in a bull market,” reported CNNMoney (March 7, 2016).


Is the path now clear for gold prices to march on toward new all-time highs? Perhaps.

But gold bulls can be temperamental and unpredictable. Sometimes they disappoint, as was the case with multiple short-lived bull markets in the 1980s and 1990s. Sometimes they keep running and running until they go parabolic.

So far all we've seen is a gold rally turn into an "official" bull market by virtue of prices advancing 20%. It's an encouraging sign of strength; but it's not in itself confirmation of a larger trend in force. A major bull market is characterized by a series of higher highs and higher lows over a period of months to years.

So far, gold has rallied around 22% from a low over a period of a few weeks. This rate of ascent isn't sustainable in perpetuity. A healthy bull market ebbs and flows – it takes two steps forward and one step back, as It were.

That's why a price correction after a 20%+ advance would be normal and healthy. If it's a major bull market, then prices will go on to make a higher high, followed by a higher low.

Recall that the last big mania in gold took place from mid 1976 to January 1980. Prices surged more than 700% over that time period. Yet there were still corrections along the way – until the final, parabolic blow-off move. Another major gold bull market didn't return until 2001-2011.

Yet from 1980 to 2001, there were multiple rallies of greater than 20%. For example, from April to September 1980, gold prices rallied more than 40%. But from there, they turned around to make lower lows.

In the summer of 1982, gold prices spiked 65% – from $300 to $500 an ounce. But by 1985 prices had fallen back below $300. The gold market hit rock bottom in 1999 at just above $250. Prices rallied 30% in the second half of 1999 before sliding back down to test those ultimate lows one last time in 2001.

The point is that when it comes to precious metals markets, an official bull market designation doesn't necessarily mean the larger bear market is over. Investors must consider other technical and fundamental evidence that a major bull market is in force.

Major bull markets typically begin when pessimism reaches an extreme. That seems to have occurred last December when the Federal Reserve moved to raise interest rates. At the time, the Wall Street Journal reported that “a shift to higher rates is expected to hurt gold.” Meanwhile, an enormous speculative short (bearish) position had built up on gold and silver in the futures markets.

Everyone was looking for precious metals to keep falling heading into 2016. The January 4, 2016 issue of Barron's contained an article titled "Gold Likely to Stay Tarnished." It quoted an analyst prediction of $800/oz gold and concluded, "Beaten-down gold is unlikely to tempt many investors in 2016."

Oh, really?

The financial establishment’s bearish consensus on gold has thus far proven to be dead wrong. Demand for the yellow metal is surging in 2016 along with the spot price. Assets in gold price-tracking exchange-traded funds have swelled so rapidly that one such instrument – the iShares Gold Trust (IAU) – took the unprecedented step of suspending the creation of new shares. The fund’s managers said they were overwhelmed by $1.4 billion in new inflows since the start of the year.

Investors in gold ETFs are left to wonder not only whether their shares are being fully backed by physical gold at all times; but also whether a fund manager might decide to suspend redemptions in the event of a selling surge of similar magnitude as the recent buying surge.

Investors in gold and silver coins are left to wonder whether dealers may run out of inventory of popular products such as American Eagles. The U.S. Mint in recent months has been hit with record demand for Silver Eagles. At current rates of buying, the Mint alone will require more tonnes of silver this year than is mined in the U.S.! And that does not even count the substantial amount of silver rounds and bars that private mints manufacture.

This fact leads us to what ultimately must underpin a major bull market in precious metals: favorable fundamentals of supply and demand. Gold and silver markets can rise or fall by 20% over any given period based purely on technical factors. But if the precious metals are going to launch into a multi-year bull market that takes prices to new record highs, it will be because of strong physical demand coupled with tightness in supply.

Negative real interest rates are great for gold prices.

The wild card going forward is the monetary backdrop. Never before have central bankers pursued negative interest rate policies en masse. From Europe to Japan and beyond, some $6 trillion in global assets are stuck in negative-yielding bonds. The U.S. could be the next big country to go negative.

Negative interest rates might make physical precious metals (which obviously don't pay interest) more attractive than ever before as financial assets. But historically what has mattered and what will likely continue to matter most for precious metals is not whether nominal interest rates are falling or rising. It's what's happening with real (after inflation) rates on bonds and cash. The more people fear losing to inflation by holding bonds and cash, the more they will seek gold and silver for protection.

So far in 2016, silver hasn't performed as impressively as gold. Silver's continued underperformance is one of the few remaining negatives on which precious metals naysayers can hang their hats. In a major bull market for precious metals, silver should outperform. Gold is analogous to a blue-chip stock in the Dow Jones Industrials. Silver is akin to a small-cap technology stock – more thinly traded, more volatile, more potential for explosive gains.

Silver lagged behind gold in the early stages of the bull market that began in 2001. But silver put the exclamation mark on the sector top that occurred in 2011 with a dramatic spike to nearly $50/oz. The next great precious metals bull market could give us a triple-digit price handle on silver and a doubling (or more) of gold's former all-time high.

Fasten your seatbelt!

By Stefan Gleason

MoneyMetals.com

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2016 Stefan Gleason - 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.


© 2005-2018 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