Last week, we called the Gold bull market in these commentaries as Gold broke through the $US 308 and $US 310 levels. As you can see in the data above, this week Gold went through a very shallow "correction" before bolting $US 3.90 to a new 2002 high on Friday, May 3. Open interest on the Comex is soaring, even though daily volume has not been particularly high. And troubles in the "paper" financial markets are worsening by the day. The $US index is plummeting and U.S. stock markets are sagging too, with heroic efforts being made to keep the Dow (just) above the all important 10000 level.
If you accept the prognosis that Gold IS in a bull market, what is there to look forward to now? No, we are not talking about the obvious. Sure, the Gold price will go "higher". And no, we are not going to make any attempt to guess "how high" it will go. What we are interested in here is the attitudes and actions of investors as more and more of them wake up to the fact that there is a "bull" market going on, and it is in - of all things - GOLD.
The best way to do this is to compare what is going on now to what was going on when Gold started up on its first major bull market at the beginning of the 1970s. The major similarity between then and now is that Gold had been firmly OFF the radar screens of investors for decades.
In both cases, in the early 1970s and today, ordinary investors knew all about bull markets. Twenty years ago, in early 1972, the Dow stood at or about the 1000 level. Twenty years before that, in 1952, it had stood at about 260. True, the Dow had first hit the 1000 level at the end of 1966, but investors had become used to a "bull" market in stocks. They had enjoyed one for a generation.
The situation is exactly the same today, in 2002. Twenty years ago, the Dow stood at 776. At the beginning of 2000, it stood at 11722. Today, the Dow stands at just above 10000. True, the Dow has sagged since early 2000 and the other major U.S. indexes have fallen drastically, but the general situation remains the same. Investors have become used to a bull market in stocks. They have enjoyed one for the past twenty years.
When a bull market has continued for that long, it takes an AWESOME amount of "disillusion" before the majority of investors will finally bail out. Most investors will not even BEGIN to sell until it is far too late. And as for looking for alternative investments, most never do.
The vast majority of investors who enjoyed the long bull market in stocks from the early 1950s to the early 1970s never sold out of stocks at all during the rest of the decade. And very few of them looked to Gold as an "alternative investment" until it was well into "bubble" territory in very late 1979, early 1980.
The exact same thing is almost certain to happen this time too. The vast majority of investors who enjoyed the long bull market in stocks from the early 1980s to the end of the 1990s have not sold out of stocks - even stocks on the Nasdaq which has fallen by 68% since March 2000. Most of them won't sell out at all. And VERY few investors have noticed Gold, let alone contemplated actually "investing" in Gold (or Gold stocks or Gold derivatives of whatever nature).
There were actually two bull markets in Gold during the 1970s. The first one took place between 1971 and the end of 1974 during which Gold went from $US 35 to $US 195. Very few American investors took part in that one. Admittedly, they were hampered by the fact that they were not allowed to own Gold (until January 1, 1975). But very few investors in the rest of the world - who were allowed to own Gold - took part in it either.
The second Gold bull market of the 1970s took place between August 1976 and January 1980, during which Gold went from $US 102 to $US 850. It was during the blow-off stage of this second bull market - between September/October 1979 and the top in January 1980 - when most investors finally decided that Gold was indeed an investment alternative to the chasing of stocks which they had been doing all their investing lives.
There is NO doubt in our minds that something very similar will happen this time. By this we are NOT suggesting that the new Gold bull market will last as long as the two in the 1970s did, nor that Gold's gains during it will be similar to what the gains were in the 1970s. The gains could be smaller - or MUCH bigger. What we are saying is that this is how investment markets work. When investors have been focussed on one market (the stock market) for their entire investing lives, they are VERY slow to abandon it and even slower to look for alternatives.
The other main point to be made here, in the very beginning stages of the Gold bull market, is that no major bull market is ever "over" until the public is in up to their necks. It may not be a long time before the "public" abandons the markets they are used to and looks at Gold this time. But whatever the timeframe, we can confidently predict that Gold will be MUCH higher (and the stock markets likely MUCH lower) before it happens.
It is very early days yet for Gold. We are only just getting used to Gold being back above $US 300, and for most of the past 20 plus years, $US 300 has been the "floor" for Gold, not the ceiling.