Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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.


© 2005-2017 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

Catching a Falling Financial Knife