Gold During and After a Bull Market

Brian Hicks

Updated August 29, 2011

Gold’s incredible run has been a bit too far too fast for most investors.

Gold is up 54% in the past year.

That’s a big gain in any market. And from what recent history has taught most investors, that’s too far, too fast.

That’s what I told Hard Money Millionaire readers last Tuesday.

Gold prices fell about 10% in the next 48 hours.

But gold investors shouldn’t be too concerned about the short-term swings of the volatile gold market…

They should be focused on what’s really going on in the financial world — and how it will propel gold to currently unthinkable levels.

How Low Can You Go

First off, the current gold correction is nothing to be worried about.

Sure, the “gold is a bubble” crowd has been reinvigorated. The past weeks’ mainstream financial headlines have been dominated by phrases like “gold bubble bursting” and “safe havens getting risky.”

The headlines, however, typically move with whatever happened that day in the markets. Up day, recovery is strong. Down day, depression is right around the corner.

Listening to them is like trying to drive a car forward while only looking in the rearview mirror.

There are, however, reliable sources you can use to guide yourself safely and profitably past the daily ups and downs. One of these is history.

And once gold’s current run is put in a historical perspective, its next move becomes a whole lot clearer.

Stay In the Boundaries

For example, when compared to the last gold bull market, the past year’s 54% peak-to-trough run in gold is well within bull market territory.

The table below shows the changes in average annual gold prices throughout the last major gold bull market.

Historical Average Gold Price Moves 

As you can see, the current run-up is neither too far nor too fast.

In fact, half the times prices rose by at least 50% in a year, gold did even better the next year. The rest of the time, gold prices fell or held steady in the next year.

As a result, we can conclude the big run-up may have been a bit too far in the short term. But over the long run, the current 54% move is still well within historical norms for a bull market in gold.

Keep in mind this is a correction.

That means the bull run in gold is not likely to turn significantly to the green anytime soon.

Sooner Rather than Later

The turnaround may be a while… but history shows it won’t last long.

This table shows the essentials on all previous corrections in the gold bull market:

 Historical Gold Price Corrections

Simply put, (with the credit crisis as the lone exception) none of the gold corrections were very deep, nor did they last a long time. Even when the 2008 anomaly is incorporated, the average correction took four months to hit bottom…

And after the correction was over, it took just about seven months to fully recover from the correction and set new highs.

In short, the average correction has lasted only a few months. And the window of opportunity to buy the dip can — and will — go by quickly.

Buying Right Assets at the Right Time

Gold will inevitably continue its ups and downs. As gold prices head higher, the short-term swings will seem larger.

The current $150+ correction feels a lot bigger than it is. The decline has only been about 10%. But since it appears to have fallen fast and hard, the herd will expect it to continue to fall.

Only time will tell if they are right in the short term. But in the medium to long term, the outlook for gold is as strong as it ever was.

Remember, there are only a few assets that perform consistently well in today’s current financial and economic environment. Gold is one of them.

And as we wrote in our last analysis of investing successfully in an era of financial repression, the best move is to “focus on the assets that do best in an era of financial repression and buy when they’re temporarily out of favor.”

Gold is falling out of favor now. Don’t let this time pass you buy.

The next correction may just be a drop from $3,000 to $2,700…

Good investing,

Andrew Mickey
Analyst, Wealth Daily

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