You might think you’re late to the party with gold trading at recent highs, but the data suggests we are actually in the early innings of a massive bull market. While gold and silver have shown strength recently, the long-term technical evidence points to a move that is just beginning to accelerate. To understand why, we have to look at the historical "breakouts" that defined previous generations of wealth.
The first piece of evidence is gold’s recent 13-year "cup and handle" breakout. In the world of technical analysis, this is one of the most powerful patterns a commodity can form. History shows us that these moves don't end in months—they last for years. The "Greatest Breakout of All Time" in 1972 ran for 8 years into a secular peak. The 2005 breakout ran for over 6 years. Today’s breakout is barely two years old, meaning the trend has significant room to grow.
When we look at gold’s performance against the S&P 500, we see that it has just broken out from a 12-year-long base against the stock market. This is a critical signal because it shows capital is finally rotating away from overvalued stocks and moving back into precious metals. A similar story is told when comparing gold to the traditional 60/40 portfolio of stocks and bonds. Historically, these secular bull markets persist for 8 to 9 years once the breakout occurs. We are currently only about 12 months into that specific move.
Furthermore, gold remains historically under-backed and under-owned. During the Great Depression and the 1980 peak, the gold price necessary to back the monetary base was over 100%. Today, that backing is only at 21%. Similarly, central banks are buying gold aggressively, yet gold as a percentage of international reserves is still well below the levels seen in the 1970s.
Finally, the average investor is still not "in" on this trade. Gold ETFs currently make up barely 2% of total ETF assets. In 2011, that number was over 8%. This lack of participation is actually a bullish sign; it means the "real move" hasn't even seen the massive influx of retail money yet. As capital continues to rotate out of bonds and stocks, gold’s cyclical bull market—which is likely only halfway done—has plenty of upside left. The current market corrections aren't the end; they are likely the last excellent entry points we will see for years to come.
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