Successfully Riding the Precious Metals Secular Bull Market

Normally, secular (long term) bull markets follow similar patterns, even if the assets might differ. Able investors who study the fundamentals of a particular market and believe that it is undervalued are able to enter at a bull market's earliest stage, or what is termed the stealth phase. Riding out this lengthy stage requires patience, as it is characterized by a lack of volatility, upside or downside. A second stage leads on from this in which a greater percentage of investors and even a relatively small portion of the general public catch on to the importance and benefits of investing in a certain asset. As this second stage develops, so does the volatility in price, just as we are experiencing in the current precious metals market. This second stage is called the awareness phase. As more and more people are attracted to gold and silver, a mania begins to develop. Although the bubble-calling pundits have been trying to claim that we have reached this stage many times, the bubble stage will not have been reached until a sufficient percentage of global wealth has been allocated to precious metals, and the masses are actually participating in the market. Eventually, we should be able to observe line-ups around the block outside precious metals stores, as occurred in the final stages of the 1980 bull market.

The fact that gold is beginning to be talked about at dinner parties does not mean that it has reached this final mania phase or that it is becoming a bubble. Most, if not all of those people talking about the rise in gold prices - if in fact they talk about it - have not actually gone out and purchased any. This is a well known phenomenon to those who have already committed themselves to buying gold and silver. Many of these investors cannot think of anyone they know who has actual physical exposure to gold and silver beyond jewelry and silverware. Clearly, the bubble-callers have it all wrong for gold, and even more so, for silver.

However, the mania phase is not that far off, and those who do not have physical exposure to precious metals should take advantage of the relative calm and comparatively low prices that still exist at this point. Currently, central banks across the world are actively buying up physical gold to hedge against the depreciation of fiat currencies and bonds. This is especially so for the emerging nations such as China and India.

As our world economy continues to deteriorate and the vulnerability of fiat currencies starts to become more obvious to all through higher rates of inflation, institutional investors and the general public are expected to start seeking physical exposure to gold and silver en masse, just as they have done before. This will be driven by three characteristics: Greed, fear and the need to hedge against rapidly rising inflation. Greed is a type of allure-based driver in this phase, whereas the fear that people will feel when they sense that collapse is imminent is based more on compulsion. Likewise, when inflation starts to rise so much that consumers are truly affected by inflation in their daily lives to the point that it becomes blatantly obvious to them and even painful, these people will be forced to put whatever wealth they have in real assets, particularly gold and silver. This will only be history repeating itself.

The Importance of a Sound Exit Strategy

A time will come when people owning gold and silver should sell a significant portion of their metals during this mania phase. This will be a time when people should look for another place to position their wealth in another undervalued asset class that is still in its stealth or awareness stage in order to maximize the purchasing power of their metals being sold. This should be done in stages.

A series of market indicators such as the Dow to gold ratio (as it approaches a 1 to 1 ratio) as well as gold's actual value in purchasing power when buying other real assets such as real estate will need to be considered when moving out of precious metals. Other economic and geo-political indicators will also be factors in helping analysts forecast the peak of this present bull market. However, since it is too difficult to be able to determine any market's apex, selling would normally be done in stages once these indicators suggest that the mania phase is reaching its climax. This can be executed on both sides of the market's crest in order to maximize gains, as outlined in the following chart:

Feel free to contact G.I. Metals DMCC to allow a secure and transparent entry in the precious metals market to be undertaken.