Not a day goes by, without hearing about b——. Right now it seems, bitcoin is reaching the point of FOMO (Fear of Missing Out) and is taking the grips of speculators. The challenge as investors is to seek investment opportunities when no one is really paying attention to an asset class. This is where huge opportunities are made because it is no-one’s radar, particularly the general media, yet the dynamics are starting to build with the optimal risk: reward options for gold.
Many have stated that the price of gold bottomed in December 2015. If gold has bottomed in 2015, then what is a reasonable price to expect in this current cycle, and how long would it take to reach those targets?
On a historical basis, when we look at the price action of gold over its past bull cycles, it gives us an approximate sense as to how high gold will go in this current cycle, and how long one should expect the price action to occur. It also helps to realistically determine reasonable entry levels, by the appropriately determining expected multiples to earn on the investment, and at what price you would be comfortable entering, particularly if you are more of a momentum trader, than long-term buy and hold investor.
The price of gold has ranged in price appreciation of 5 to 20 times, but really the metric is between 5 to 10 times because during the mid-1970’s the price of gold went through a bear market falling by more than 20%. This is why the 1970’s can be broken up in terms of two bull markets, not the one that most pay attention to.
More critical to the professional investor is trying to determine how long this next bull market could last, and where are we in relation to these past cycles. Past cycles have shown the gold bull cycle has lasted from 800 to 3,200 trading days. Most of the move in price occurred in the second half of the cycle, with the first half of the cycle mostly having sideways trading. Right now, we are currently past the half-way point when comparing the bull moves from the 1970’s, which may imply that we are starting to get ready for the moves in gold.
Risk-Reward from A Long-Term Portfolio Management View
The gold price hasn’t even gone up by 1X, since the bottom of 2015, with upside in the price ranging from 5 to 9 times. This is being realistic. From a risk-reward basis, we think assuming you get the timing wrong; the rewards are in your favor, given where we are in the current next leg of the cycle. An asset rotation out of public assets and into private assets will be a key driver for this sectors push.
From a Trader’s View
The momentum in the near-term is not ready yet to head higher in dollars terms. Gold would have to break above $1,400/oz. for it to really gain the momentum and push forward.
In non-dollar terms, with the Federal Reserve has raised rates and the expected US tax bill is passed, we could see the strengthening of the US dollar. This would potentially push gold up higher in non-dollar terms.
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