Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Best Way to Invest in the Long-Term Gold Bull Market

Commodities / Gold and Silver 2010 Nov 02, 2010 - 04:52 AM GMT

By: The_Gold_Report



Best Financial Markets Analysis ArticleThe gold price recently made a new high amid widespread concern over weakness in the U.S. dollar. The gold rally has been driven by strong global demand among investors seeking a safe haven. Demand has been driven mainly by uncertainty over the economic outlook, as investors continue to recover from the fallout of the financial crisis two years ago.

Many investors believe gold is a crisis hedge and attribute its recent rally to the widespread belief that the financial crisis persists. If nothing else, the credit crisis of 2008 should have dispelled the myth that gold is the "ultimate crisis hedge," as it was dumped along with everything else in the rush to achieve liquidity two years ago. But gold does feed off investor uncertainty and concerns about deflation, regardless of whether such concerns are justified or not. It's the uncertainty factor more than anything else that fuels investors' desire to stock up on gold.

A momentum bull market in gold lasting several months is driven by something more than fear, however. Gold's current rally is also being driven by demand—industrial, consumer discretionary (jewelry) and growing affluence among people in emerging countries. It's also being pursued as a key asset among hedge funds that are always on the lookout for an asset with strong fundamentals, which can be pushed steadily higher with minimum risk of a drastic price reversal. These are all factors one sees in a strengthening economy. Thus, the gold rally can be viewed as another reason to expect more recovery in the global economy.

clif droke

In a recent issue of Barron's, Michael Santoli tackled the question that some investors are starting to ask themselves: "Is gold in a speculative bubble?" Recently, numerous investment analysts have asserted that when John Q. Public becomes aware of a bull market, that market's days are numbered. Well, the public is definitely aware of gold's recent success. Does this mean the gold bull market is doomed to an inglorious end soon?

To answer this question we need only to go back to the 1980s, at a time when the U.S. stock market was at a point similar to gold's 10-year bull market. Everyone was aware that stocks were a hot investment, and upper-middleclass and wealthy investors definitely had exposure to stocks. Yet, the working middleclass didn't directly participate in the '80s bull market by and large. Not until about 15 years into the bull market did the average Joe became involved with the stock market boom. And, by that point, an asset bubble had definitely developed.

If you look around at the current investor makeup of the gold market, you won't see much evidence that the public is participating in this bull market. Instead, you'll see well-to-do investors participating; though the public hasn't really bought into this gold bull run yet. Even silver, which is the traditional "poor man's gold," isn't exactly a hot commodity with the small investor (notwithstanding the mini-mania in owning silver coins a couple of years ago). Until we see broad participation from an overly enthused public, there is no reason to expect gold's bull market to end anytime soon.

I second Santoli's conclusion on the gold bull market: "But there are just too many sound reasons for people of wealth to continue pushing money toward gold. And there is too much of a discount being placed on gold reserves in the ground based on the valuations of gold mining stocks for this trend to fall apart with any drama anytime soon."

One of the reasons behind gold's most recent rally involves a shift of assets among conservative investors from low-yielding bonds into gold. In a recent issue of his Current Market Update, Jack Ablin of Harris Private Bank observes, "Historically, the opportunity cost for owning gold was considerable. However, now that three-month Treasury Bills offer yields of a quarter of a percentage point, investors feel they are leaving less on the table." Ablin points out that gold's year-over-year gains are typically consistent with a 2%—3% inflation rate. "Measured against other commodities, like crude oil, its gains are well within expectations," he concludes.

Gold's impressive rally in September was fueled in part by seasonal demand from jewelry makers and by news that European central banks had sold only 6 tons of gold this year (of the allowed 400 tons to sell from their reserves as part of a five-year European agreement). This represents more than 90% from their sales a year ago. Instead of selling gold, central banks purchased 222 tons from the IMF, which has played a role in increasing gold demand, as well as the price per ounce.

Another factor behind the latest rise has been the currency component of the gold price. Once again, the U.S. dollar has taken center stage as the Dollar Index has been in a downtrend of late and the weak-dollar trend has provided additional fuel for the rally in gold and gold stocks. Friday, the front page of The Wall Street Journal drew attention to the dollar's weakness and served as a podium for discussion of the favorite political strategy of leaders around the globe—exporting their countries out of recession. The current U.S. presidential administration has broadcast its intent to boost U.S. exports to help further the recovery in the business sector.

At the IMF/World Bank meeting on October 10th, global finance leaders failed to resolve differences in policy that threaten to drive a full-blown currency war. Martin Crutsinger writing in the Associated Press reports, "Various nations are seeking to devalue their currencies in a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to The Great Depression of the 1930s, as country after country raises protectionist barriers to imported goods."

A U.S. policy that focuses on exports is conducive to a weak dollar. This policy is also conducive to rising gold prices, which is yet another fundamental factor bolstering gold's long-term uptrend.

The yellow metal continues to garner publicity in the editorial pages of mainstream newspapers and magazines at a rate not seen since before the credit collapse two years ago. Newsweek recently ran an editorial piece entitled, All That Glitters by Nick Summers, who pointed to the conflicting currents of opinion among financial analysts on the metal's near-term future. Summers quoted Paul Christopher, a Wells Fargo strategist, who opined, "Gold up to $1,300 is a rise that's tantalizing, but is risky. We think it has further to run." In contrast, Vanguard's Chris Philips sees the mainstream attention that gold's rise is attracting as a red flag. He warns that gold ETFs may have gotten too big and, therefore, vulnerable to a rapid decline.

Summers himself made this observation: "If gold is a good bet for inflationary times, its performance in the low-growth years since 2002 doesn't add up." He has hit on the essential truth of the matter in that gold's best performance occurs when deflationary risks are the primary economic threat—not inflation. There are two times along the economic long wave that gold's price is most likely to rise: 1.) In the final hyperinflationary period (e.g., the 1970s); and 2.) The final "hard down" phase of the deflationary end of the long wave. This is the part of the long wave we've experienced for almost 10 years. By the time gold's current long-term bull market is over, I think it's safe to assume that financial journalists like Summers will generally agree that gold is the ultimate safe haven for deflationary times.


An excellent proxy for tracking and trading the gold price is the SPDR Gold Trust (ETF) (NYSE:GLD). For silver, we use the iShares Silver Trust (ETF) (NYSE:SLV). Quite a few useful ETF products have been introduced and are a great benefit to individual traders who want to participate in the trending moves of precious metals without the hassle of owning the physical metal.

To that end, the ETFs are invaluable and you can be assured of finding one for just about all the precious and industrial metals. For instance, ETF Securities has launched four precious metals funds in the past 14 months, including its flagship ETFS Physical Swiss Gold Shares (NYSE:SGOL), which is the first ETF in the U.S. to invest directly in gold bullion housed in Switzerland. Its ETF for silver is the ETFS Silver Trust (NYSE:SIVR). ETF Securities has also recently introduced a platinum ETF, ETFS Physical Platinum Shares (NYSE.A:PPLT) and a palladium ETF, ETFS Physical Palladium Shares (NYSE.A:PALL).

Another worthwhile ETF for investors looking to participate in the junior gold mining industry is the Market Vectors Junior Gold Miners ETF (NYSE.A:GDXJ). Market Vectors also has a useful fund for tracking the uranium price, the Market Vectors Nuclear Energy ETF (NYSE:NLR).

clif droke

Speaking of ETFs, TD Ameritrade announced last week that customers can buy and sell more than 100 ETFs with no commission. The announcement is part of a campaign to drum up interest in ETF trading among retail traders. Understandably, small traders have been reticent to trade stocks and ETFs actively since the credit implosion of 2008—not to mention the "flash crash" earlier this year. Investors who want to trade ETFs may wish to look into this attractive offer.

Clif Droke is the editor of Gold Strategies Review, providing forecasts and analysis of the leading North American small-cap, mid-tier and senior mining stocks from a short- and intermediate-term technical standpoint since 1998. He is also the author of numerous books, including most recently, The Stock Market Cycles. For more information visit

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Timmins.
3) Ian Gordon: I personally and/or my family own shares of the following companies mentioned in this interview:Timmins Gold, Golden Goliath, Millrock and Lincoln. My company, Long Wave Analytics is receiving payment from the following companies mentioned in this interview, for receiving mention on my website, Golden Goliath, Millrock and Lincoln Gold.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules