“Bull markets never go straight up.”
That was a lesson I learned early in my career. I also learned that there are many sayings about bull markets.
- They “climb a wall of worry.”
- They are “born on pessimism.”
- They “grow on skepticism.”
- They “die on euphoria.”
- And “a bull market covers a multitude of sins.”
I found a kernel of truth in all those sayings. And today, the bull market we need to focus on is in gold…
Gold Is Making a Comeback
This chart shows the end of a bear market (in December 2015) and the start of a new bull market.
I can tell by the lows. The blue line shows the bottoms in each gold price cycle.
The low in December 2015, where the line starts, is the lowest. Then each successive bottom is higher. That’s why the line points up.
That’s great news. It’s a critical sign that gold is getting stronger.
The peaks mark periods when skepticism won. But each time, the price dropped less, before it moved higher again.
That’s an excellent sign that gold prices are moving into a bull market. Consider this … the recent high of $1,350 per ounce is nearly 30% above the low in December 2015.
Companies that produce gold outperformed the commodity. That’s because they have leverage.
They have fixed costs to mine the gold. That means, as the price goes up, the extra money they get for each ounce goes right to the bottom line.
If a company mines a million ounces of gold per year, an extra $10 per ounce is worth $10 million in extra profit.
That’s why the VanEck Vectors Gold Miners ETF (NYSE: GDX) is up 88% since its low in early 2016.
But it’s early in the bull market…
3 Factors That Will Make Gold Prices Rise
The recent high in the gold exchange-traded fund (ETF) was back in mid-2016, when it hit $31 per share.
Today, it’s just $22 per share. It’s up 30% in six months — but still well below the 2016 high. The GDX shares would have to rise another 37% to hit that price.
And they will.
I won’t be surprised if we see GDX break its 2016 high in the next six months.
Gold prices will keep rising. There are three main forces working to make that happen: a weaker dollar, global demand and inflation fears.
All these factors make gold more attractive. That spurs demand, and the price goes up.
It doesn’t have to go up much to spur another big run in mining companies. Remember: A 30% rise in gold led to an 88% rise in gold stocks.
In my newsletter Real Wealth Strategist, we’re up over 50% in four months on a small gold stock. We just added another gold miner to the portfolio, because we expect this trend to continue.
And your skepticism just makes this bull market grow.
Good investing,
Matt Badiali, Editor
Real Wealth Strategist