Isaac Newton’s first law of motion reads as follows: “An object at rest stays at rest, and an object in motion stays in motion.” The same can be said about investments — especially when that investment is gold.
The mystical metal tends to cycle through very long periods of rising prices, followed by very long periods of falling prices. And neither side of the cycle gives up easily.
Once thegold marketgains a head of steam, like it did in the mid-1970s and early 2000s, there’s no stopping it. Likewise, on the other side of the cycle, once gold stumbles into a bear market, there’s no stopping that either … at least not quickly.
It’s a waiting game.
Eventually, gold’s multi-year moves to the upside — and to the downside — simply exhaust themselves.
Most recently, for example, the gold price topped out in 2011. Then it slipped from that high and sputtered lower for the next seven years — losing about half its value during that rough patch.
The downturn exhausted itself in late 2018, and a new bull market got underway. The advance started slowly at first, but it has gained major momentum during the last few months.
If past is prologue, the yellow metal has a lot farther to run before the final curtain falls. In fact, I expect the gold price to double over the next two or three years, much like it did in the wake of the 2008 financial crisis.
That period in financial history — much like the current one — was a time of aggressive deficit spending and monetary policies to combat crisis conditions.
The “growing conditions” could hardly be more ideal for a major gold rally.
One year ago, I identified the four main factors that usually fuel a major gold bull market.
Any one of these factors can provide enough “oomph” to power the gold price higher. But this time around, all four are interacting with one another at the same time.
That’s why the current gold rally could produce explosive results before ultimately topping out.
Getting Ready for the Next Gold Rally
The four factors that fuel agold marketrally are:
- Monetary instability
- Economic crisis
- Geopolitical stress
- Financial market cyclicality
Certainly, the globe is dishing up heaping portions of economic crisis and geopolitical stress. As a result, the U.S. dollar is losing value against most of the major world currencies, while all major currencies are losing value against gold.
That’s textbook monetary instability.
Source: Chart by InvestorPlace
In moments like these, gold becomes almost impossible to ignore. It distinguishes itself by delivering strong gains, even when the stock market isn’t.
Unlike most other financial assets, gold tends to zig higher when stocks are zagging lower. It is what professional investors call a “non-correlated asset,” as the chart below illustrates.
Source: Charts by InvestorPlace
Each year in the chart shows the investment returns for the S&P 500 and gold during the preceding five years.
Take a look at the year 2000 toward the middle of the chart, for example. Stocks had been booming for several years while gold languished. But from that infamous peak, the stock market tanked while gold soared.
During the 11-year span from August 2000 to August 2011, the S&P 500 slumped more than 25%. Even after adding in dividends, the index produced a loss of 8% during those fruitless years.
But gold soared nearly 600% during that time frame.
Then it was the stock market’s turn once again. Over the ensuing five years, from 2011 to 2016, the gold price tumbled more than 40% while the stock market doubled.
Now gold is back on the leaderboard, while stocks trail behind. Over just the last two years, gold has soared 60% — triple the gain of the S&P 500.
And yet, because the stock market has recovered so briskly from its March lows, and because so many high-profile stocks are hitting all-time highs, many investors are unaware of gold’s recent strength.
But facts are facts…
Don’t Ignore the Signs
Over the last one-, two- and three-year time frames, gold has produced a greater return than the S&P 500. This three-year outperformance could be a glimpse of what’s to come over the next three years.
Near term, both gold and silver might be taking a well-deserved rest. Because of their big rallies, both metals have become what technicians call “overbought” — and therefore susceptible to a correction.
So I would not suggest piling headlong into the market immediately. Instead, nibble away slowly and build positions on weakness.
There will be corrections along the way, but the precious metals are heading a lot higher.
P.S. I’m urging my readers to get in front of what I see as the next big market move. And that’s gold. But I’m not suggesting you buy bullion, coins, ETFs, mining stocks or any other type of investment you’ve likely heard about before. There’s something much better I’d like to tell you about today. Click here to see the full story.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.