I’ve studied bull and bear markets for over half a century. In my experience, great extended bull markets, such as the current ten-year bull market in gold, don’t die with a wheeze and a whimper. They die amid mass excitement, torrid speculation and finally the wholesale entrance of the retail public. – Richard Russell, July 19, 2011
Think of any great market in your lifetime, or any that you’ve studied before you invested. In just the last 13 years, we’ve had two that qualify: the Internet stock market and real estate.
Remember how both of them ended? In “mass excitement, torrid speculation and the wholesale entrance of the retail public.” I know that many people have short memories, and it is easy for them to forget the lessons of even the recent past. But this is how bull markets end. I’ve never seen a great bull market that did not end this way.
[ad#Google Adsense 336×280-IA]Can we agree that gold was in a bull market during the 1970s? (Actually, from 1971 to 1980.) The price rose from $35 to $850. I was there, and I can tell you that the “retail public” did not buy in at $35 or even $335. They waited until the $800 area. I didn’t start to see “mass excitement” set in until the price rose over $600 during the last year of that bull market, in 1979.
The same thing for silver, which rose much higher in percentage terms. From $1.29 to $49 nine years later, the general public did not get in until the very last year of it, again in 1979.
These days, you see gold talked about as news on TV once in a while. But it’s like one of those events over which the average person thinks he has to be an on-looker, of which he is not a direct part. In investment terms, for most of his money, he is still thinking in terms of the older bull markets, which already ended: stocks and real estate.
This is a pattern we’ve seen before, and with every bull market I’ve known. People jump into a bull market toward the end, and then it takes them years to move on. They’re still lining the streets after the parade’s gone by.
Now, I’m not saying that some stocks aren’t good investments, or that some locations aren’t strong real estate choices. But as a general class, for both of them, the excitement has long since passed. For gold and silver, it is yet to come.
Here’s what Russell has to say about where we are on the “bull market cycle”:
My impression is that individual retail buyers from all over the world are beginning to accumulate gold in small quantities, regardless of the price of gold. Thus there is subtle pressure to push gold higher, even regardless of its official Comex price. Thus, we may be seeing just the edge, the very beginning, of retail interest in gold as a safe-haven currency.
Slowly, the retail public is once again accepting gold as real money (sorry, Ben Bernanke, who recently denied that gold is money – don’t miss the confrontation between a stupefied Ben Bernanke and Ron Paul on You Tube).
I agree with Mr. Russell. I think we are just on the cusp of a move of global investors into gold and silver – I’d say maybe 5% of the way in.
I don’t mean 5% into the entire bull market. We are 100% over with the first part of the bull market cycle, where just a few people are brave enough to enter. This part lasted from 2001 to maybe one year ago. I mean 5% into the part of the cycle that sees the retail investor accumulate. In other words, I’d estimate one-twentieth of the way until the mass of the public hungers for it.
Judging from most bull markets, this does not mean that we are only 5% of the way through in terms of time. This final period where the retail market plunges in can see a lot of people, and a huge percent of the total amount of people, come in all during a small period of time, as in a few weeks or months…
You know this part when you see it. For real estate, it was when 20-somethings talked of putting down payments on properties on their credit cards, sure they could flip the properties for a higher price. It’s when a house can change ownership twice in one day (the way I saw in June 2005 in South Florida).
You know it when you see it, but we are very far from this in gold and silver now.
Take this recent little piece from economist Paul Krugman, for example, which seems to argue that gold has gone up because a small group of Americans are buying it.
Like so many Americans today, he still thinks that the U.S. and Americans are the only players on the globe. Nothing is said about the rest of the world. Just take two other nations, India and China. Both have currencies that are tied, roughly, to the U.S. dollar. Both currencies should be higher than they are. Many citizens of both see this, and have been accumulating a currency that is free to rise, with no national government trying to devalue it, or able to. It helps that both nations have deep cultural ties to both gold and silver.
Also, Europeans are turning to gold as an alternative to their sick and uncertain trans-national currency. To say nothing of the many smaller nations that are becoming greater forces than they ever were: places like Vietnam, where total gold holdings (most of them private) amount to nearly half of the entire GDP.
I like to look at comments posted by readers at the end of articles like this. They are a good way to see how average people think about things. And comments at the end of the Krugman article – such as “Stupid people buy gold” or “What a bubble this is!” – reflect a vast sea of ignorance.
Ten years into a huge bull market and most people don’t think it is for real. But then again, this is the perfect mix for a bull market to operate in. Bull markets always rise with as few people on board as possible.
Finally, I’ve made an unscientific study of those people I hear say that “gold is a bubble.” So far, I’ve always found that they fell for and lost money in the true bubbles of either the Internet stocks or real estate, or both. And they don’t have money in gold.
At some point I’d think that even the people who today say that only stupid people buy gold will jump in. But by then, the price will be many hundreds of percent higher than it is now. When you read and listen to the ignorant comments, they are of such a depth of feeling (if not sense) that it will take years for most of them to change their mind. So I think we are years away from any end to this bull market.
This kind of market is the dream of an investor like me. A bull that is so quiet and so looked down upon by most people, but that has gone up each one of the past 10 years, and will probably (I don’t want to say ‘certainly’) go up again in 2011.
If you are just coming on and are hesitating to put too much of your wealth in the area, I can say without worry that there is still a lot of room, and time, left.
Good investing,
— Chris Weber
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Source: Daily Wealth