Untitled Document
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Gold's secular bull market -- a timeline from 1998 to 2012
(Please see "Understanding a secular bull market" below)


Year
1998 -2002
2003 - 2007 2008 - 2012
Price
(Year End)
1998
$287.80
1999
$290.30
2000
$274.50
2001
$276.50
2002
$347.20
2003
$416.30
2004
$435.60
2005
$513.00
2006
$632.00
2007
$838.80
2008
$869.80
2009
$1087.50
2010
$1405.50
2011
$1531.00
2012
$1655.50
Major
Events
Chronicle
  • 1998
    • Pacific Rim financial crisis
    • Netherlands, Argentiina, Australia conduct highly publicized central bank gold sales
    • Hedge fund Long-Term Capital Management collapes, bailed out by Wall Street financial firms
    • German central bank announces past gold leases
    • New European Central Bank announces inclusion of gold in its reserves
  • 1999
    • Switzerland announces future sale of one half of its 2590 tonne gold reserve
    • Bank of England announces plans to auction 415 tonnes of gold
    • Consortium of fifteen major European central banks announces formal agreement significantly limiting sales and leases of gold (Central Bank Gold Agreement)
    • Fear of computer rollover problems associated with year 2000 creates strong demand for gold coins and bullion
  • 2001
    • Terrorist attacks on World Trade Center in New York and Pentagon building in Washington, D.C.
    • Gold hits bear market bottom at just under $260 per ounce
    • First gold-plated stent used in heart surgery
    • Mining companies begin long process of unwinding forward sales
  • 2002
    • Gold's long-term secular bull market begins
    • Shanghai Gold Exchange opens
    • U.S. national debt goes over $6 trillion
  • 2003
    • Second Gulf War begins
  • 2004
    • China emerges as economic powerhouse, raising the possiblity of increased physical gold demand
    • International Monetary Fund warns the United States that fiscal and trade deficits could undermine world economy
    • First gold exchange traded fund (ETF) launched
    • Central Bank Gold Agreement renewed for additional five years
    • U.S. national debt goes over $7 trillion
  • 2005
    • Hedge funds, pension funds begin to buy gold in large volumes through ETFs
    • Gold breaks $500 per ounce
    • Russia begins build-up of gold reserves principally through internal purchases of mine production
  • 2006
    • Oil power United Arab Emirates announced converting 10% of reserves to gold
    • Gold breaks $600 per ounce
    • U.S. national debt goes over $8 trillion
  • 2007
    • Gold breaks $800 per ounce
    • Central banks inject trillions in liquidity to forestall international real estate crisis
    • Commodities complex rises to 32-year high largely on Chinese demand
    • Major commercial banks collapse in Germany and United Kingdom
    • China becomes largest gold producer supplanting South Africa (production goes to national reserves not international market)
    • U.S. national debt goes over $9 trillion
  • 2008
    • Gold breaks $1000 per ounce, new all time high
    • Financial market collapse - AIG, Bear Stearns require bailout
    • Lehman Brothers collapses, no bailout
    • General global financial panic begins; Iceland banking crisis
    • Fannie Mae, Freddie Mac bailouts
    • Gold retreats to near $700 per ounce - its first major correction in secular bull
    • U.S. national debt goes over $10 trillion
  • 2009
    • Record private investor demand for gold coins and bullion
    • China announces 454 tonnes increase in gold reserve
    • International Monetary Fund (IMF) announces plan to sell 403 tonnes of gold
    • India purchases 200 tonnes of gold from IMF
    • Severe Europen sovereign debt crisis surfaces
    • Federal Reserve monetizes $600 billion in government debt
    • United States adds $2 trillion to the national debt in a single year
    • Gold breaks $1100 per ounce
    • Central Bank Gold Agreement renewed for additional five years
  • 2010
    • Record gold demand pushed by China, United States, Europe and India
    • Gold breaks $1400 per ounce
    • IMF announces gold sales complete, 403 tonnes sold
    • For first time in three decades investor gold demand outstrips Far Eastern jewelry trade
  • 2011
    • Osama bin Laden killed in Navy Seal raid in Pakistan
    • United States, France credit rating down-graded from AAA
    • Gold goes to $1895 per ounce new interim all-time high, then retreats
    • U.S. national debt goes over $15 trillion
  • 2012
    • European fiscal and debt crisis, steep decline in value of euro verus dollar
    • ECB's Mario Draghi announces unlimited bond buying program
    • US Federal Reserve announces new round of quantitative easing
    • US federal debt goes over $16 trillion
    • Central banks extend trend adding gold to reserves
    • Top central banks embrace, publicize easy monetary policies
    • Year ends with uncertainty over US fiscal problems, budget and taxes
    • US Mint announces strong end of year brings surge in gold coin sales following election
    • Global debt and economic problems encourage consistently strong gold demand all year
 

 

by Michael J. Kosares

A secular bull market, according to Investopedia, is one "driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. In a secular bull market, strong investor sentiment drives prices higher, as there are more net buyers than sellers. . . Secular markets are typically driven by large-scale national and worldwide events, which occur in combination. For example, wars, demographic/ population shifts and governmental/political policies are all events that could drive secular markets. A secular bull market will have bear market periods within it, but it will not reverse the overlying trend of upward asset values. For example, most economists agree that U.S. equities were in a secular bull market from about 1980 to 2000, even though the stock market crash of 1987 occurred within the same time period."

In 1980 the Dow Jones Industrial Average began its secular bull market at 760 and topped twenty years later at 11,723 -- rising roughly 15.5 times. If gold were to match the Dow's performance, it would rise to just over $4000 per ounce by 2021 -- a roughly 15.5 times gain over a 20 year period. In gold's secular bull market of the 1960s to early 1980s, it rose nearly 25 times -- from $35 per ounce to $850 per ounce. If it were to match that performance, it would rise to $6500 per ounce.

The three stages of a secular bull market

Returning to Investopedia, we find that, according to Dow Theory, secular bull markets move through three stages -- accumulation, public participation and excess (mania). The accumulation stage starts the up trend and usually comes at the end of a down trend, when the psychology is overly negative. Gold reached that turning point in late 2001. True believers capitalized on the negative sentiment by buying gold at what turned out to be bargain prices. For gold that phase ended in 2006 as it crossed the $500 per ounce threshold.

The public participation phase began in 2006 and it is the stage in which gold finds itself today. According to Investopedia, the public participation stage is characterized by good news and strong supporting data, and is the longest lasting of three phases. Since 2006, investment demand has risen steadily with announcements throughout the period of new hedge fund and institutional interest as well as very strong private investor demand in the form of coins and bullion.

In early 2012, the World Gold Council reported central banks, after decades of heavy selling, also became strong net buyers of the metal -- a significant turn of events. When one considers what might propel gold to the ultimate mania

(continued right column...)

 

Understanding gold's secular bull market

djia-gold

 

phase of its secular bull market, central bank and institutional fund demand come up as the primary candidates and for good reason. At present, according to a study by Sprott Asset Management, gold comprises just .7% of global financial assets, compared to 5% in 1968 and 3% in 1980. Such statistics suggest that there is plenty of room for upside as the percentages return to the historical average.

A third, a third and a third. . . .

In a recent essay, James Rickards, the author of the definitive book, Currency Wars, explores the nature of what he calls "old money" – dynastic wealth that goes back 300 years or longer. "This type of wealth," he says, "has survived not only business cycles but also war, invasion, the collapse of empires, revolution, and natural disaster. In order for family wealth to persist through so many centuries and through such adversity, something more is needed than ordinary investment skill. This rare kind of success in wealth preservation requires a longer view, infused with a sense of history and a keen appreciation for worst-case scenarios that too frequently become real."

He goes on to say that the formula for wealth preservation reduces to the phrase "a third, a third and a third" – one-third land, one-third gold and one-third fine art. The point in all of this is not that stocks and bonds should be banished from the contemporary portfolio, but instead something a bit more subtle. (Note that Rickards' formula addresses wealth preservation not investing for profit.) There is a connection between the sentiments Rickards raises about “old money” and the secular bull market for gold, simply because the worst-case scenario frightens investors across the financial spectrum -- old money, new money, institutional money and public money.

Gold is not simply an investment vehicle, like stocks. It is a also a savings instrument, a form of wealth insurance and a long-term estate hedge. As such, its usefulness can extend beyond that of a short term investment held principally for profit and profit alone. Central banks and hedge funds accumulating physical gold, for example, often point to global economic uncertainties and the unreliability of national currencies as their incentive. That would suggest that they will retain their gold holdings as long as these problems remain a threat. (Germany's decision to repatriate a significant portion of its foreign-held gold is the latest manifestation of this trend.) The bull market is likely to continue drawing strength from this wide spectrum of investors until such time that the economic problems fueling the interest are resolved.

_____________

Michael J. Kosares is the author of The ABCs of Gold Investing - How to Protect and Build Your Wealth with Gold and the founder of USAGOLD.


This timeline is posted with the understanding that it has been prepared for informational purposes only and the Publisher or Author is not engaged in rendering legal, accounting, financial or other professional services. The information in this newsletter is not intended to create, and receipt of it does not constitute a lawyer-client relationship, accountant-client relationship, or any other type of relation-ship. If legal or financial advice or other expert assistance is required, the services of a competent professional person should be sought. The Author disclaims all warranties and any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein. Opinions expressed by contributors are strictly their own and publication here does not represent endorsement by USAGOLD.


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