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Posts Tagged ‘bull market’
Rob McEwen comes out with his Projections on the Gold Market
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Rob McEwen, Chairman and CEO of U.S. Gold and founder and former CEO of Gold Corp the second largest gold producer in the world was interviewed by Bloomberg on January 12th 2009. He has been on the record since March of 2006 saying that gold will reach $2,000 per ounce by the end of 2010. He also states that he believes that gold will hit $5,000 per ounce somewhere between 2012 and 2015.
He sites as his reason for this rapid run up in the price of gold will be due to the governments around the world printing money at a high rate. Mr. McEwen thought that the bull market would have ended by now, but people are starting to see gold as money, a currency that trumps all others. This new demand has fueled the fire further than he thought it would. He is so strong on gold rising that he advises that gold mining companies do not hedge.
In my opinion, Rob McEwen could be right. Gold is in a bull market, and typically bull markets end with a blow-off top in the third phase. We have not seen that third phase yet, so we could see very sharp and dramatic price increases during that time frame. It is undeniable at this point that the U.S. Government is printing money at an alarming rate. Some experts speculate that they have doubled the money supply in under a year’s time. Anytime money printing is done in this fashion it puts extreme pressure on inflation which in turn puts upward pressure on gold. Look at what gold did in the 1970’s, when inflation was running high, gold grew from $35 per ounce to $850 per ounce.
All assets run in cycles so we very well could see gold hit $2,000 per ounce this year. I think it will depend on how the economy performs this year and how much confidence is instilled in the American people. Many have said that the hole has been dug and that the dollar will ultimately collapse like all other fiat paper currencies have. If that is the case gold could go much higher than even $5,000 per ounce. But let’s hope that doesn’t happen, because if it does we are in a lot more trouble than any of us want to be.
5 Reasons why Gold is a Good Investment Today
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1. Hedge against inflation
2. Hedge against a collapse of the U.S. Dollar
3. Bull Market
4. Diversification
5. Store of Value
Probably the number one reason why people are investing in gold today is due to a fear of inflation. Central Banks around the world have turned on the money spigots and began flooding banking markets around the world with liquidity. This has scared many people and rightfully so. Once all of this liquidity hits the hands of the people we are in for a serious bought of inflation, maybe even hyperinflation. I have read some statistics that have said that the Federal Reserve (which by the way is a private bank) had doubled the money supply in a year’s time. It will be difficult for the Fed to draw back in all of that liquidity. Although they want you to believe it will be easy for them. When inflation hits gold prices will continue to rise.
Some people are even more concerned that the U.S. dollar will not only hyper inflate, but that it will eventually collapse and become worthless paper. We have seen this happen many times throughout history, the most recent being Zimbabwe. Their currency was declared dead in April of 2009. Citizens of Zimbabwe began digging and panning for gold in order to scrape together enough grams of gold to be able to provide for their families. Gold goes a long way under these circumstances.
On a more positive note, gold can be played purely as speculation that the price will rise. We are in the middle of the 10th consecutive year of price appreciation. This is a strong bull market for gold, and many experts are calling for gold to reach $2,000 to $5,000 per ounce before the cycle ends. Therefore, putting money into gold now, if the experts are right, can be very lucrative.
Gold is always, first and foremost a portfolio diversifier. Gold typically performs better when stock, bonds, dollars and other paper assets do poorly. However there are times when gold does well in conjunction with paper assets, but typically gold and other precious metals will compliment your paper assets nicely, giving you appropriate diversification.
Gold has always been a store of value. For over 5,000 years gold has been coveted and treasured. Gold will never be worthless, while any paper asset can be rendered worthless under a variety of circumstances. Now gold can definitely decline in value but it will always be worth something. Governments and countries can collapse and companies can go bankrupt which would then render those respective paper assets worthless. Gold has no debt or any other encumbrance or decision maker attached to it other than you.
These times are proving to be the perfect time to own gold.
Gold Price Gains and Losses over the Last 3 Months
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The price action on gold has been hot lately. Gold closed at an all-time high on December 2nd of $1,212.50 per ounce. The price action prior to that was climbing almost daily from the $1,050 mark. After it reached the high of $1,212.50 it slowly made its way down to test the $1,050 support level. It came close to this support level but never broke it. It closed at around $1,058 on February 5th and since then has steadily climbed to where it sits today of $1,112.
The up and down market action can be scary for your average investor. This is why I always say, if you are not a day trader then you do not need to pay attention to the daily market action. What you are looking for are trends in the market. Trends are what tell you what to do in the long-term. Trends should guide your strategy. If you look at a chart of gold from 2000 to present you can see a long-term positive trend. It started at $252 per ounce and has been climbing ever since. Sure there have been some big corrections along the way, buy that is what you want. Ups and downs are a sign of a healthy market. If you were watching the daily market action you might have sold out too early. This is why trends are so important.
Take March of 2008 to November of 2008 for example. Gold rose to an all-time high of over $1,000 per ounce and steadily fell to $709 per ounce. Had you have sold out because of the downward slide, you would have missed out on the following upswing. As for the current trend, everything is pointing towards a continuation of the upward trend. Two of the biggest factors playing into the future of the gold market are the U.S. Dollar and normal bull market cycles.
The dollar has been in a steady demise for a few years now, and with all of the money printing going on with the U.S. government I don’t think it will be going strong anytime soon. I have written many times in this blog about the three phases of a bull market which I think is also a big factor contributing to the positive trend in gold. Many experts are calling for gold to hit $2,000 per ounce this year and $4,000 to $5,000 per ounce before the trend is over.
Gold Market Ups & Downs
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Some people are concerned out there that gold is too high and will be coming down. My answer is, I hope it does. Ups and downs are part of any healthy bull market. The key to investing in anything is to identify trends. Gold has closed higher than the previous year close 8 years in a row. This is an upward trend. Gold has come all the way from a low of $252 per ounce. Sure there have been ups and downs all along the way, but that is what you want. If gold only rose and never corrected then we would be getting close to the end of the bull market.
Money in gold is made in the long-term. Buy and hold though the trend cycle. Don’t be scared when gold goes up and then corrects. For example, in March of 2008 gold rose to $1,032 per ounce and then corrected all the way down to $792 per ounce in October of the same year. People are always going to take profits all the way through the trend cycle. Gold as of this writing stands at $1,123. If you would have stayed out of the gold market just because gold was falling rapidly for 7 months in 2008 you would have missed out on some serious gains.
Will gold rise in the future? No one knows for sure, but what does the trend cycle say? The trend cycle would suggest that we still have a ways to go before this gold market tops out. The simplest way to analyze this would be to look at the three phases of a bull market and see which phase we are in. Many experts would suggest that we are in the second phase, which would point to the fact that we haven’t seen the third and final speculative/panic phase where gold will rise rapidly. To read more on the three phases of a bull market click on the underlined phrase in this sentence.
Any healthy gold market will have ups and downs, therefore it is important to identify trend cycles. We are in a rising trend currently so don’t let market corrections scare you, even if they seem to be a big one.
Is this Gold Bull Market Over?
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Is this gold bull market over? In order to answer this question one must have an understanding of how bull markets usually work. First let me say that no one has a crystal ball, and therefore no one knows for sure what will happen in this bull market. This is purely my opinion based upon how markets have functioned in the past.
Bull markets generally work in three phases, which I will call the accumulation, awareness and panic phase. In the first phase, the accumulation phase, the asset quietly goes up without too much attention being paid by Wall Street or the general public. The first phase of this gold bull market ran from 1999 until about 2005.
The second phase, the awareness phase, is where Wall Street and the general public, begins to pay attention and then participate at a higher level. Values begin climbing at a faster pace towards fundamental values. In my opinion this is where we are now. The evidence of this is very apparent. Commercials are popping up all over the TV and radio; people are beginning to talk casually about it and investment firms and foreign central banks are buying. Generally speaking the second phase will usually last five to seven years.
The third phase, the panic phase, is where everyone sees what is happening and everyone wants in. Wall Street and the general public are going all in buying up whatever they can. Values begin to go up very rapidly, far above fundamental values. This phase can be compared to the real estate market of 2004-2005 and the dot.com bubble of 1999-2000.
So is this gold bull market over? I say that we are no where close to the end. I believe that we are only in the second phase and that based upon what is going on with the dollar that we have 3-5 years to go before gold tops out. Some experts are saying that just to reach our inflation adjusted high of $850 per ounce in 1980, that gold values would have to reach somewhere around $2,300 per ounce.
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