It’s been a rough couple of months for the price of gold. Frustration from its range-bound behavior has been ongoing—and now as I write, it’s testing the bear market lows.
Isn’t this worrisome?
There are two reasons why I’m not worried; one is short term and the other long term.
‘Tis the Season
Want to guess what historically has been the worst month for the gold price?
Since 1975, March has been by far the worst month for gold.
In other words, the recent downturn is normal for this time of year.
Considering these data, we should view this decline as an opportunity to add to our bullion holdings, especially if you dollar cost average or don’t have the allotment you want.
There’s also a big-picture reason why we shouldn’t worry about gold’s recent weakness…
The resource markets are well known for moving in cycles, probably more than most other markets. Raging bull market, crippling bear market, repeat. And as you’ll see, this definitely includes gold… and silver.
Yes, catalysts can impact the price along the way—a big discovery, government interventions, and good ol’ supply and demand. But the context that determines how the price ultimately performs in a given period is where we are in the cycle.
Cycles never repeat with the same length or breadth, but they distinctly boom and bust, over and over again. The data don’t tell us exactly when gold’s next upcycle will get underway, nor how big it will be, but it does tell us this: another bull cycle is coming.
We charted the major cycles for gold and silver from 1975—when gold again became legal to own in the US—to present.
Here are gold’s cycles.
Since 1975, gold has logged eight major price cycles. While no two are identical, our recent downcycle has been one of the longest on record. It’s also been slightly bigger than the average percentage decline.
Regardless of the nominal price, gold has repeatedly cycled between bull markets and bear markets.
Given the prolonged nature of the current bear market, history suggests that the current down cycle is about over. It doesn’t mean the next bull market will start tomorrow, but it does indicate that the next major cycle will be up, regardless of short-term fluctuations.
Silver also has prominent cycles.
In terms of percentage decline, silver’s recent downcycle is the second biggest on record. This is a strong indication that silver’s bottom is likely in.
And like gold, the picture shows that the next big cycle is up.
So what does all this mean to us? Setting the timing aside, history says…
The current downcycle in the precious metals market has exceeded historical averages.
Given the extent of the selloff, particularly with silver, the bottom for these markets is likely in.
The pattern of market cycles means the next major trend for our industry is up. We don’t know when, but history says it’s coming.
In other words, the gains ahead could be tremendous. All you have to do is hold on and wait for the next cycle to begin. No timing required.
Living through a bear market isn’t fun, but remember that bear markets don’t last forever. They inevitably lead to the next bull market.
The historical data tell us that gold’s current price behavior is temporary. It also signals that we should capitalize on that temporary situation, especially considering a world full of growing currency manipulations and negative interest rates—a pattern that simply can’t be sustained and will inevitably lead to some kind of monetary fallout.
Don’t worry about the current price of gold. Use your HAA account to make sure you’re prepared for the next upcycle.