Timing the Next Big Move in Gold

When it comes to the markets, timing is everything. My colleague Larry Edelson understood this better than any investor I’ve ever met. He was an avid student of history, as I am as well. In fact, my favorite college classes weren’t economics or finance, but ancient Greek and Roman history. 

Mark Twain said “history doesn’t repeat itself, but it does rhyme.” And that’s so true of financial markets. Studying the past gives you a unique perspective into the cyclical and repetitive nature of societies as well as markets.

In fact, Larry’s life’s work was devoted to studying market cycles in a historical context, as I said in last week’s Money and Markets.

I point this out because precious metals will soon enjoy an epic new bull market, if the upside move isn’t underway already. Larry’s on record predicting gold will rise to $5,000-plus, while silver soars to $125 an ounce or more.

And I believe these could prove to be conservative price targets.

But Larry also warned that many investors could miss the next explosive move in gold and silver, because they aren’t paying enough attention to the lessons of history.

They are waiting for the same old events that have typically driven gold prices higher in the past: financial shocks … inflation … and especially, a collapse in the dollar.

But as they watch for these events, they risk missing out on a major portion of the next bull market.

And as Larry would tell you, history won’t repeat exactly for gold. And I couldn’t agree more.

That’s because gold is most likely to be driven higher by factors that are different, events that most investors haven’t experienced before.

Do not let a strong dollar fool you into thinking precious metals can’t move even higher

For example, the one factor most investors believe is an absolute requirement for a gold bull market: A sharp decline in the U.S. dollar, is dead wrong. In fact, it’s perhaps THE biggest misconception of all.

Almost everyone believes gold and silver prices go up when the dollar goes down, and vice versa. You simply can’t have a rip-roaring bull market in gold at the same time the dollar is strong. But that’s simply not true.

Yes, the recent decline in gold from 2011 to 2015 did correspond with dollar strength, but here’s the reality: Correlations between asset classes can and do change all the time.

For proof, just look back at the lessons of history, as Larry always did …

• In the 1930s, as Europe collapsed under a mountain of debt from the first world war, the dollar surged higher as capital flowed into the U.S. And guess what, gold soared at the same time!

• More recently, during the global financial crisis and its immediate aftermath, gold and the dollar rose together from 2008 to mid-2010. Not always in lockstep of course, but the dollar rose 25% while gold jumped 35% at the same time.

So, don’t let a strong dollar fool you into thinking precious metals can’t move even higher. If you do, you may miss out on the next, and most lucrative, phase of the precious metals bull market.

Mark my words, the historical events that drove gold higher in the past won’t repeat exactly, but will rhyme.

Good investing,

Mike Burnick

Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.