Gold price in bull cycle

Last Updated: 3. Januar 2024By

Gold is in a bull cycle. Don’t tell me you didn’t notice. Admittedly, even though the gold price reached not only an all-time high in December, but also an all-time high on a weekly closing basis, it happened in a remarkably unspectacular way. This was because it happened without much intervention from major Western speculators and institutional investors. It happened solely due to the purchasing power of the „East“ and central banks.

Gold price in a bull cycle Source:

But experienced commodity traders know: Gold can stagnate for many years. But once it enters a bull cycle, the uptrend will continue for years.

To identify when gold enters its bull cycle, the crossing of the 1- and 3-year moving averages was used, while the signal for the end of the cycle is when the 3-month moving average crosses below the 3-year moving average.

On average, a bull cycle has historically lasted 51 months since the 1950s. Since the signal appeared again in June 2023 (in green), the gold bull market is statistically expected to last another 45 months, until October 2027.

Gold bull cycles bring high profits Historically, the performance of the gold price in a bull cycle is 75%. Since the last signal, the gold price has risen by 7.7%, and a further increase of 68% is expected.

The longest examined gold bull cycle lasted from April 2002 to May 2013, for a total of 134 months (11 years). In this period, gold prices rose by a total of 400-500%. Other significant bull runs were from September 1971 to January 1976, where the price rose by 200-300%, and between December 1977 and August 1981, which brought an increase in value of 150-300%.

Gold stocks work with leverage on the gold price Gold mining companies have a big advantage: With rising gold prices, they generate significantly more free cash flow in no time at all. Let’s assume a company has AISC operating costs of US$1,300 per ounce. The gold price is at US$2,000 per ounce. This equates to a margin of US$700 per ounce.

If the gold price now rises by 25% to US$2,500, the company’s margin already increases to US$1,200. That is an increase of over 71%! Accordingly, the valuation metrics of companies also change practically overnight. This is where the famous leverage of gold stocks to the gold price comes into play.

This can also be shown graphically, for example in the bull phase between April 2002 and March 2008, before the major financial crisis brought turmoil and imbalances to the market and gold was preferred as a safe haven, while stocks, as risky assets, were rather avoided.

Gold stocks show leverage to the gold price Source:

While the gold price increased by 225% in the aforementioned period, gold stocks gained 273%. Of course, individual stocks outperformed the index (here GDM) even more massively with high three- to four-digit gains.

Conclusion: The gold bull market will bring high profits We are only at the beginning of a gold bull market. This is shown by the fact that the previous highs have occurred in the complete absence of highly liquid Western participants. But when the Western speculators and investors enter the market again, the party will really get going.

Get ready. Hold on to your gold and your carefully selected gold stocks.

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