A secular bull market, according to Investopedia,
is one "driven by forces that could be in place for many years, causing
the price of a particular investment or asset class to rise or fall over a
long period of time. In a secular bull market, strong investor sentiment
drives prices higher, as there are more net buyers than sellers. . . Secular
markets are typically driven by large-scale national and worldwide events,
which occur in combination. For example, wars, demographic/population shifts
and governmental/political policies are all events that could drive secular
markets. A secular bull market will have bear market periods within it, but
it will not reverse the overlying trend of upward asset values. For example,
most economists agree that U.S. equities were in a secular bull market from
about 1980 to 2000, even though the stock market crash of 1987 occurred
within the same time period."
In 1980 the Dow Jones Industrial Average began its secular bull market
at 760 and topped twenty years later at 11,723 -- rising roughly 15.5 times.
If gold were to match the Dow's performance, it would rise to $4058 per ounce
by 2021 -- a 15.5 times gain over a 20 year period. In gold's secular bull
market of the 1960s to early 1980s, it rose nearly 25 times -- from $35 per
ounce to $850 per ounce. If it were to match that performance, it would rise
to $6500 per ounce.
The three stages of a secular bull market
Returning to Investopedia, we find that,
according to Dow Theory, secular bull markets move through three stages --
accumulation, public participation and excess (mania). The accumulation stage
starts the up trend and usually comes at the end of
a down trend, when the psychology is overly negative. Gold reached that
turning point in early 2001. True believers capitalized on the negative
sentiment by buy gold at what turned out to be bargain prices. For gold that
phase ended in 2006 as it crossed the $500 per ounce threshold.
The public participation phase began in 2006 and it is the stage in
which gold finds itself today. According to Investopedia,
the public participation stage is characterized by good news and strong
supporting data, and is the longest lasting of three phases. Since 2006,
investment demand has risen steadily with annoucements
throughout the period of new hedge fund and institutional interest as well as
very strong private investor demand in the form of coins and bullion.
In early 2012, the World Gold Council reported
central banks, after decades of heavy selling, also became strong net buyers
of the metal -- a significant turn of events. When one considers what might
propel gold to the ultimate mania phase of its secular bull market, central
bank and institutional fund demand come up as the primary candidates and for
good reason. At present, according to a study by Sprott
Asset Management, gold comprises just .7% of global financial assets,
compared to 5% in 1968 and 3% in 1980. Such statistics suggest that there is
plenty of room for upside as the percentages return to the historical
A third, a third and a third. . . .
Gold is not simply an investment vehicle. It is a also a savings instrument and a form of wealth
insurance. As such, the argument goes, it cannot and
should not be analyzed along the lines of a stock or the stock market as a
whole. Since gold is essentially a kind of money by which investor-citizens
hope to counter negative economic trends, many owners are likely to retain
ownership as a lifetime estate hedge, particularly if the conditions that
necessitated the hedge remain unresolved. Central banks and hedge funds
accumulating physical gold, for example, often point to global economic
uncertainties and the unreliability of national currencies as their incentive.
That would suggest that they will retain their gold holdings as long as these
problems remain a threat.
In a recent essay, James Rickards, the
author of the definitive book, Currency Wars, explores the nature of
what he calls "old money" – dynastic wealth that goes back
300 years or longer. "This type of wealth," he says, "has
survived not only business cycles but also war, invasion, the collapse of
empires, revolution, and natural disaster. In order for family wealth to
persist through so many centuries and through such adversity, something more
is needed than ordinary investment skill. This rare kind of success in wealth
preservation requires a longer view, infused with a sense of history and a
keen appreciation for worst-case scenarios that too frequently become
He goes on to say that the formula for wealth preservation reduces to
the phrase "a third, a third and a third" – one third land,
one third gold and one third fine art. The point in all of this is not that
stocks and bonds should be banished from the contemporary portfolio, but
instead something a bit more subtle -- that gold is quietly restaking its claim to primacy and should not be ignored
in the modern era. The fact that this has taken on the appearance of secular
bull market is a secondary consideration.
Click here for the complete
analysis, "Gold secular bull market - a timeline from 1998 to 2012"
Michael J. Kosares, the
editor of USAGOLD News, Commentary and Analysis, is the founder of
USAGOLD and the author of "The ABCs of Gold Investing - How To Protect
and Build Your Wealth With Gold."
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