In the big picture we think the gold and silver bull market has just started to warm up. It is not that we believe the ten year bull market has not been underway for a significant amount of time, but rather we believe the majority of the price appreciation is ahead and not behind us.
There is a common belief that rising interest rates are negative for the price of gold. Where do these crazy ideas come from? If that is the case then gold investors should fear that the bull market is nearly over as interest rates are near zero and when they eventually do rise the bull market will be threatened. Contrary to this popular opinion we think that rising interest rates are a great sign for gold! With rates near record lows it means that there is a lot of "fuel" for the gold price when interest rates do eventually rise. Currently there is a nice big, fat bond market loaded with capital ready to pour out of bonds and into the commodities market. To prove our point, consider the following historical examples:
In the above charts notice the following:
- Interest rates and gold generally move in the same direction. We believe that rising interest rates are a Bullish and NOT a Bearish sign for Gold.
- In many instances, interest rates tended to "peak" after gold has already peaked. This would not support the theory that rising rates end gold advances. If rising interest rates were ending the gold advances then one would expect interest rates to peak first and then cause gold to peak second.
We have found the following argument is used to support the idea that rising interest rates are negative for gold: 'In the 1970's Fed Chairman Paul Volker raised interest rates ending the gold bull market.' This appears to be the only argument that has created the apparent myth that rising interest rates are bad for the price of gold. Instead we would argue that when interest rates are rising, bond prices are falling as capital flows out of bonds and into gold. We would argue that around the early 1980's was the end of the bear market in bonds which was around the same time the bull market was ending in commodities. To support our theory, we have provided the above historical examples.
With interest rates at near all time lows we think that there is a lot of capital in the bond markets that is ready to pour into the commodity markets when rates rise again.
The following chart compares the price appreciation of the price of gold compared to historical price advances.
Like all bull markets the majority of the price appreciation will come towards the end of the advance when the 'manic / parabolic' phase hits. We feel this explosive ending is a long way off from today and there will be a lot of ups and downs along the way. We are expecting there will be more great buying opportunities and we plan to add to positions at lower risk opportunities.
At investmentscore.com we have created long term Custom made signals to help us monitor the long term "mega trending bull markets". We also monitor the intermediate term moves to help us to decide when to add to or lighten up on positions. To learn more visit www.investmentscore.com and be sure to sign up for our free newsletter.
