Why Gold May be Poised for the Next Big Bull Run

It is best to avoid the orthodox notion of playing Gold Stocks off the threat of dollar depreciation, which makes positioning golds as not much more than speculation on foreign exchange conditions. When positioning on the real price (of gold) one is looking at earnings, which is investing. And profit margins improve as the real price goes up particularly in a post-bubble contraction.Bob Hoye, Aug. 2022

A quick glance at our monthly average gold price chart dating back to 1995 may not look very bullish for the yellow metal with the monthly price plunging below the 20-day average and closing within $44 of the 40-month average.

But what is true in nature—”It is always darkest before the dawn” is often true in markets. Based on the wise observations by veteran market analyst Bob Hoye, set out above, I think there is a very good chance that is true for gold right now.

What Bob has documented through the ages is that when bubbles are being blown up and paper markets enjoy orgies of profits, gold doesn’t fare very well. But when the boom ends and the bubble implodes, the real price of gold—what it will buy—increases. For gold miners that is important because gold rises relative to the cost of getting it out of the ground. Hence the best time for gold miners is during periods like the 1930s and more recently for a couple of years after the 2008-09 crisis.

The illustration on your right suggests that the greatest fiat currency orgy in history is just now starting to end with a clear-cut sign of housing market decline triggered by rising interest rates. Housing leads the way so it is a great leading indicator of an impending recession. Because it is such a large segment of our economy when it declines, new orders decline, leading to declining profits, which lastly results in higher levels of unemployment. There are still people foolish enough to believe the Fed can orchestrate a soft landing with minimal damage to stock and bond prices.

Here is what Bob says we should be watching for, to tell us the real price of gold is on the rise: (1) rise of the gold/copper ratio; (2) the “real” rate of interest rises; (3) the senior currency (the dollar) rising vis-à-vis other fiat currencies; and (4) gold/silver ratio is rising. Bob says, “The more diverse the confirmations, the better.” With all of the above now true, we may be getting close to gold’s next big move that should break through to new highs.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.