Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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.


© 2005-2019 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