(Brien Lundin, Money Metals News Service) Yes, it’s different this time.
I know that’s about the most dangerous phrase in all of investing, and virtually everyone who has ever uttered it was ultimately made a fool by the markets.
But there’s no denying that this gold bull market is unprecedented for a number of reasons.
A Bull Market Like None Other
First off, understand that gold, while it has a five-millennium history as money, has only been an investable asset (and not officially regarded as money) since 1971, when President Nixon severed the dollar’s last remaining connection to gold.
So if you count the early ’70s as one bull market, the late ’70s as another, and the 2000s as the third, then the current bull market is only the fourth in the history of gold!
Amazing to think that I’ve witnessed every gold bull cycle. (Admittedly, I was a teenager in the ’70s and, fair to say, interested in other things.)
Anyway, when I say this gold bull market is unprecedented, I’m only comparing it against three other periods in history.
Still, this one is different because it has been largely driven by official buying from central banks and, to some degree, by demand from Chinese investors.
And this explains some of the unusual features of this market:
- The relative nonparticipation of Western investors, whether institutions or retail.
- The underperformance of silver and mining shares.
- Outside of post-election correction in November, the lack of any significant price pull-backs.
- Depressed and falling energy costs which have served to further expand mining margins as the gold price has exploded higher.
- A period of economic and geopolitical turmoil in which the U.S. is regarded by other nations not as a leader or savior, but rather an instigator and adversary.
I can’t remember any single one of these factors being extant in any previous gold bull run, much less all of them at once.
This is truly uncharted territory.
Today, I want to briefly examine two aspects of this situation — gold’s strange behavior, and the opportunity that’s being presented.
A Refusal To Fall
Over the previous 14 months, I have joined many of my compatriots in the metals and mining markets in analyzing the gold market as a normal phenomenon.
That means that we’ve been expecting it to ride the waves of investor sentiment, from exhaustion to euphoria, with the gold price rising and falling in typical waves.
But gold hasn’t obliged us. Every time we’ve expected a typical market correction, the price has either continued to rally or the “correction” has been merely a pause. The declines have never been as deep or lasting as we’ve expected.
This seems to be because this gold bull market isn’t being driven by the typical swings in investor emotions. Instead, it’s being directed by geopolitical strategy at the highest levels and fueled by the deepest pockets imaginable.
Now, my headlines at the top of this letter are a bit misleading, because every analyst worth their salt was confident that gold would rebound once China returned from holiday yesterday, and it wasn’t surprising that the gold shorts rushed to cover on Monday in advance of that.
But still, two hundred-dollar days in gold, in a row, is amazing. (Note that we’ve given up some of those gains today.)
More generally, what I’m referring to when I refer to gold’s strange behavior is this refusal to undergo a significant price correction during this bull run.
Again, this is largely because of the strategic, even desperate buying from official sources — primarily China… and possibly even the U.S.
The Opportunity…
One of the factors I listed above is the remarkable affordability of energy as the gold price soars. The result, as we’re seeing from the quarterly financials of gold miners, has been record cash flows for the producers.
For the past couple of months, we’ve seen that begin to filter down to the juniors. Even as gold soared yesterday, for example, the gold mining stocks outperformed the metal.
As I’ve said many times, this is a generational opportunity.
In past bull markets, we saw the prices of junior exploration/development companies multiply, sometimes many times over.
And for all the reasons above, plus the fact that gold is already far above any previous record and heading higher, this mining bull market promises to be more rewarding than anything ever seen.
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Brien Lundin is the publisher and editor of Gold Newsletter, the publication that has been the cornerstone of precious metals advisories since 1971. Mr. Lundin covers not only resource stocks but also the entire world of investing. He also hosts the annual New Orleans Investment Conference. To get Brien Lundin’s ongoing commentary on the markets at no charge, click here to subscribe to his free Golden Opportunities newsletter.
