Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Recession, Depression, or Recovery, Gold Continues to Boom

Commodities / Gold and Silver 2010 Sep 08, 2010 - 02:44 AM GMT

By: Q1_Publishing

Commodities

Best Financial Markets Analysis ArticleAs gold nears new all-time highs, a minority of investors is in it, more are waiting for a dip, and most will miss out on it altogether. Well, until the top when everyone will be herding into it.

The case for gold is a simple one. But today we’ll look at why the gold boom has much more room to run and how historical evidence shows there isn’t much time to “weight” to get in.


The Long Boom in Gold

All the fundamentals are in place in place for the gold bull run to continue well into the future.

The U.S. budget deficit is likely to be much worse than predicted.

In Too Much Hope and Audacity, we found the government’s deficit forecasts to be a bit too optimistic. Although they called for a cumulative $9.7 trillion budget deficit over the decade, further analysis revealed it was a “best case” scenario. The official forecast included expiration of the Bush tax cuts, no recession in the next 10 years, and a greatest hiring boom in the past fifty years. As a result, the 10 year deficit is likely to exceed the $9.7 trillion estimate.

Also, deflation has the Fed very concerned. The Fed is, at a minimum, going to keep rates at or near zero for a long time to come. That means real interest rates will likely be negative, which in The “Real” Reason it’s too Early to Bet Against Gold we show why that will keep gold prices moving higher.

Finally, there’s a much bigger driver for gold: gold is still an outside-the-mainstream investment class.

Great Things Come to Those Who “Weight”

The main reason gold has the most upside potential of any asset class is simply because so few people own it or have any exposure to it.

Remember, bubbles are driven by the masses herding into a specific investment class. The tech bubble was created by a record number of Americans owned stocks. The housing bubble was driven by the percentage of households that owned a home reached its highest point in history. The current “bond bubble” – where the U.S. government can borrow money for 10 years at 3% - has been driven by investors dumping stocks and buying bonds at a record rate.

The gold bubble will be no different. At this point however, owners of gold and gold stocks are still very much the minority.

The chart below, courtesy of BusinessInsider.com, shows how much room there is left to move in the gold bull market:

As you can see, gold sector investments – from bullion to gold mining stocks – make up a tiny fraction of the investment world’s portfolios right now.

This proves gold is still a non-mainstream-asset class.

Better yet, when we look at the history of bubbles, it shows gold prices can go much, much higher.

History is Rhyming

The major bubbles of the past 30 years have all been dominated by one theme: at their peaks, the bubble asset class makes up a substantial portion of most investors’ portfolios.

The table below shows the past three major asset bubbles and how the bubble sector made up an outsized portion of the overall market:

The oil/hard assets bubble of the late 70s culminated in 1980. At the time the energy sector made up more than 25% of the S&P 500. That was more than four times higher the level when the energy sector hit rock bottom in 2000.

The tech bubble peaked around the turn of the century. Tech stocks made up more than 30% of the S&P 500. That was almost triple the average weighting sector for the previous 20 years.

The credit bubble peaked when banks accounted for more than 20% of the S&P 500. That was more than triple its percentage in 1980.

There’s a clear pattern here signaling there’s a lot more upside for gold since they still make up a tiny fraction of investors’ portfolios worldwide.

It’s impossible to say whether gold will reach the 20%+ barrier that marked other bubble tops. The pattern, however, shows bubble assets tend to grow three to four times larger on a relative basis than their long-run averages. So it’s not too hard to see where gold and gold stocks as a percentage of investors’ assets will triple or quadruple from here.

Gold Bubble: The Biggest Yet

As gold prices continue to rise, we’ll keep in mind the key foundation for bubbles – low interest rates.

The Fed’s response to the Asian currency crisis and Russian debt default fueled the tech bubble.

The Fed’s response to the tech bust was created the even bigger housing/financial bubble.

This time around the Fed’s unprecedented actions will inevitably create another bubble that will be even bigger.

As we said in our free gold report before the stocks in went up more than 1600% in six months (get your free copy here), every few decades though, the right conditions come along to make an absolute fortune in gold and gold stocks. Right now the conditions are right.

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2010 Copyright Q1 Publishing - 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.


© 2005-2022 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