Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

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.


© 2005-2022 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