Welcome to Stage Two of Gold’s Bull Market

November 23, 2009 – Bull markets are marked by three distinct stages, and when gold climbed above $1,000, it only entered its second stage.  In other words, gold has much further to climb in the months and years ahead.

So don’t be misled by what you may hear or read in the mainstream media and even much of the alternative media. After all, how many commentators have correctly identified gold’s bull market, now a decade old? 

As Robert Blumen cogently argues: “Many of the financial media have a pronounced anti-gold bias. Of the writers and news anchors now calling gold a bubble, not only did they fail to identify the stock market bubble in the 90s or the subsequent housing market boom as a bubble, they actively promoted the excesses of those unsustainable booms, encouraging their viewers or readers to participate. For the most part, these pundits have failed to identify a rising gold price as an investment trend at any point in the past ten years (during which gold had a positive return each and every year).”  Robert then goes on to observe the silly incongruity of their warnings about gold: “Witness the irony of the financial media transformed from hypesters who never saw a bubble they couldn’t promote into bubble vigilantes, issuing concerned warnings to ‘get out [of gold], now, before you get hurt.’” 

There are different ways to determine relative value, and one of these is gauging market sentiment, which is what a bull market’s three stages communicate.  During the first stage of a bull market, the media and most investors alike focus on past issues, rather than future potential.  Over the past decade one consequently heard all the reasons not to own the gold.

An old and trusty adage says that bull markets climb a ‘wall of worry’.  In gold’s first stage, there seemingly was a lot to worry about.  But most of these worries were emotional in nature and not logical.  Few paid attention to relative value, which is the proper determining factor when making decisions about your portfolio.  Truth be told, I too was worried, but I didn’t let it keep me from accumulating gold and recommending to anyone reading my analyses to do the same.

Gold is now in its second stage, and of course, the worries don’t disappear.  They never do because there are always emotional reactions that at first blush offer seemingly plausible reasons for not taking the right action.  But there is a notable difference in this stage compared to stage one.  Look how many people are writing and talking about gold.  Gold has moved from apathy and neglect – stage one characteristics – to growing attention.  But importantly, instead of embracing gold and analyzing it to determine relative value, today’s attention is one of widespread disbelief and skepticism that gold can climb higher.  These are exactly the responses one should expect to emanate from stage two.

As gold climbs higher, we will eventually enter stage three.  The timing of its arrival cannot be predicted, but we will know it has arrived when commentators who have been consistently wrong about gold will be telling everyone willing to listen to buy gold.  But at some point in stage three when gold no longer is relatively good value, it is when I will be advising to reduce your gold holding by spending or investing it.  We are, however, a long way from there, so my advice for now remains the same as it has been throughout this decade.  Continue to accumulate gold.  View it as your savings account.  Savings are always a good thing, particularly when you are saving sound money.