When Will Gold Stocks Reach the Bubble Phase?
The bull market is moving forward but is nowhere close to a bubble nor the speculative zeal we saw in 2006-2007.
In order to figure this out, we first need to get an idea of how long the bull market will last.
Below is a great chart from Cycle Pro Outlook. It uses John Williams' CPI, which is consistent over time. Interestingly, Steven Williams of Cycle Pro has found a 17.6-year cycle between equity bull and bear markets. It fits fairly well with the alternation between equity and commodity bull markets.
In nominal terms the last two commodity bull markets lasted about 15 years and 18 years. Gold stocks were in a bull market from 1960 to 1980 while Homestake Mining (a proxy for the ancient past) was in a bull market from 1923 to 1937.
So are we looking at something closer to 15 or 20 years?
The following chart should answer that. This is the Barron's Gold Mining Index, courtesy of sharelynx.com. There isn't much data available on gold stocks but what is available shows that the 1980 high is roughly equivalent to the 2008 high. The gold stocks broke to a new all-time high but it won't be confirmed until they sustain the breakout and make new highs. Eventually the breakout will be confirmed with the next leg higher. The point here is do not expect this secular bull market to end four or five years after a major multi-decade breakout. That is too soon.
Moving along, lets take a look at the Nasdaq because there are some similarities. The Nasdaq had its initial rise from 1982 to 1987. Following 1987, it would be four years until the market was able to break out to sustained new highs. That was nine years into the bull market. The bubble began just before the 13th year of the bull market, in 1995. The circle shows where I think we are now based on various indices which includes my proprietary gold and silver indices.
The early conclusion is that the start of the bubble is at least a few years away. Based on the price action we are likely to have a major breakout and a few years of strength which will set the stage for the start of a bubble perhaps in 2014. As you can see in the chart below, the gold stocks while in the 11th year of their bull market have not sustained a new all-time high for quite a while. The gold stocks are ripe for a breakout and a powerful move higher.
The gold stocks are soon to begin the 12th year of their bull market. As we know, most bull markets last 15 to 20 years and end in an accelerated fashion. Based on our research we believe this bull market will end close to 2020 (say 2018). The gold stocks are slowly moving closer and closer to a major breakout which would likely produce a multi-year acceleration that would set the stage for the birth of a bubble.
Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter