December 20, 2011
BY: Robert Hallberg, Topics: Gold, Bull and Bear Markets
We have been in a decade long gold bull market with steadily rising prices. The price of gold has already gone up by more than 6 times, and a lot of investors seem to be asking how much further it still has to rise or if it has already reached a top. The recent drop in the price of gold has gotten a lot of investors worried.
Nearly all bull and bear markets have three distinct phases, and if you learn to recognize them you will significantly increase your chances of getting in while the market still has room to go up, and getting out before the bull market is over and people start to sell en masse.
If you have not read part 1 of this article series I recommend that you do this before you continue reading.
A quick recap about the three phases of a bull market:
1 â âDenialâ is the first phase of a bull market and it operates in stealth mode, beginning as its last bear market ends. During this phase only the so called âsmart moneyâ participates.
2 â The second phase, âClimbing a Wall of Worryâ is when the general investing publish becomes aware of this new market that is continuing to move up in price. In this phase prices are rising but investors remain skeptical, many still remember last painful bear market and consider the asset class too risky.
3 â Finally, âEuphoriaâ is the last phase which comes after years upon years of solid price action. By now the bears have turned into bulls. The investment public starts to bid up prices en masse, accelerating the price increase and creating a lot of excitement. Then, at the height of this excitement a problem starts to occur. There are not enough new investors left to continue to bid up the price so the whole thing starts to slow down.
I have reconstructed a chart of what a typical bull market looks like. If history is any indication of previous bull markets the chart below will give us an idea of what to expect. Maybe not in exact form but pretty close to it, just look at previous bull markets, like stocks in the 50âs and 60âs, gold and commodities in the 70âs, and stocks again in the 80âs and 90âs.
I believe that we are in the middle or towards the end of phase two. Gold is getting a lot more recognition these days but there are still quite a few naysayers. I recommend retail investors to buy physical gold, and to a lesser degree gold mining stocks in anticipation of the mania phase.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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