26 Mar 2011

3 Phases of a Bull Market and Gold- Where do you think we are today?

It is often said that there are three phases or stages to a bull market in anything; 



The Stealth Stage,

The Institutional Stage,

and the Mania Stage.

The Stealth Stage is so named because it is recognized by only those very bright early adopters who can see the changes taking place and position themselves accordingly. 

The Institutional Stage is so named because this is the time during which Institutional Money begins accumulating the asset. The smart money managers such as pension fund and hedge fund managers get on board for the coming parabolic rise in price.

The Mania Stage is so named because it is when the General Public becomes aware that the asset’s price has been rising uninterrupted for years and doesn’t want to miss out on a piece of the action. By virtue of the size of the funds coming from the public, the market becomes self-fulfilling in that the public makes the market rise and the more it rises, the more funds people throw at it until all investable funds are exhausted.

Lorimer Wilson, in his July 7, 2010 piece titled ‘Historical Silver: Gold Ratio Suggests Parabolic Top for Silver of Over $100 per Ounce!’ explains these stages this way:

“The collective demand trends of gold/silver investors effectively divide precious metals bulls into 3 distinct demand-driven stages, namely:

1. Stage One which occurs when a devaluation of the dominant currency in which gold is priced, i.e. the USD, leads to a moderate increase in the price of gold. Stage One for gold began on February 15th, 2001 when it reached a 22-year secular low of just $255.10.

2. Stage Two which occurs when the decoupling of gold from local-currency devaluation begins to outpace the dollar’s losses and gold starts rising significantly in virtually all currencies worldwide. Stage Two began on June 5th, 2005 when gold (at $417.67US) first surpassed 350 Euros for the first time.

3. Stage Three which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. to go parabolic) in price. We are approaching Stage Three and it will become clearly evident when the price for gold begins its daily record ascents to dramatically higher prices.”

James Turk of GoldMoney.com says that “…when gold climbed above $1,000, it only entered its second stage.” Gold first climbed above $1000 in early 2008.

John Hathaway of The Tocqueville Gold Fund sees things a bit differently. He speaks of the 4 Phases of the Gold Bull Market and defines them thusly:

· The Beginning.

· The End of the Beginning.

· The Beginning of the End.

· The End.

He believes that when we passed $1000 gold, that we entered the Beginning of the End phase.

What all of these forecasts have in common is that we have definitely passed the Stealth Stage and are approaching widespread recognition of the Gold Bull Market, similar to about 1995 when the general public began heavily investing in the stock markets a couple of years before the final parabolic ‘blow off’ phase of late 1999 and early 2000. What this means is that a wave of money is about to enter the gold market and should continue and propel the price of gold and gold equities northward for the next couple of years.

Let’s look a little closer at the parallels between today’s gold bull market and the last one of 30 years ago.

In the 1979/1980 gold bull mania phase, the price of gold rose 34.1% in the final 10 days before the ultimate top in price on January 21, 1980. In the final 20 days before the top, the gold price surged 80.3%, and in the final 30 days the gain was 95.9%. Gold nearly doubled in price from mid December 1979 to the third week of January 1980 after almost a decade long bull market. This is why I say that we’re maybe in the sixth or seventh inning time-wise but only maybe the second or third inning price-wise of this gold bull market. The greatest percentage gains come at the end of the Mania Stage. The 1970s gold bull market had to transition through the three stages and it took about 8.5 years from the time gold was detached from the monetary system on August 15, 1971.

So, where do you think we are today?


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