Friday, September 11, 2009

The Bull Tests $1,000 Again

Its been a while since I've talked about the gold market but with it crossing over the psychologically important $1,000 mark this week I thought I would take a minute to discuss where we are in this long term secular bull market.

The price of gold in dollar terms has very little importance to me regarding its fundamental value, but the price of gold has great importance to the general public; the masses.

Getting off the highway this morning at my exit to work, I noticed a small sign on the telephone pole that said "We Buy Gold and Silver," and a telephone number.

I thought back to 2001 when the very first signs began to appear on telephone poles saying "We Buy Houses." Do you remember those? They were everywhere by 2005. People were fighting for locations on the telephone poles.

I said during all of last year that I felt 2009 would be the year that we crossed over the $1,000 mark and the very first of the general public would begin moving into the market.

Secular bull markets move through four phases. The following outlines where we are in relation to gold:

1. Pessimism: 2000-2005 (The last bull market for gold peaked in 1980, and after 20 years of falling prices the general consensus was that gold was the worst investment out there)

2. Skepticism: 2006-2009 ( This is where we currently find ourselves in the market. During this phase investors have entered the market but have be shaken off and sold when the prices fell.)
3. Optimism: 2010- 20?? (During this phase investors enter the market that understand the fundamentals behind the move. Hedge funds, Mutual Funds, and the wealthy will enter)

4. Euphoria: 20?? - 20?? (This is when the masses enter the market. They will come rushing in as a herd and drive the prices to unimaginable levels. They will buy based on prices rising, not fundamentals. The euphoria will end when the public agrees in consensus that prices cannot fall. The masses will then be slaughtered)

Where will prices go from here? I have no idea. They may fall back down to $600. The important thing is that prices should rise from here based on fundamentals surrounding the global economy, just as the American dollar should fall in value.

If you understand that we are in a long term secular bull market, you should be rooting for prices to fall. All that will matter when we reach the euphoria stage years from now will be the number of gold and silver ounces you own.

It took decades for the DOW Jones to cross the psychologically important 1,000 mark, but it finally pushed through back in the early 1980's. Once it did, the market never looked back.

The same is on its way for gold. Once it crosses $1,000 and holds that mark, we will never see three digit gold again in our lifetimes.

No comments:

Post a Comment