Gold Bull Climaxes

The author of this article explains that while gold was definitely overbought at its latest peak, it was not the climax of the gold bull run. Gold still has more room to grow and when adjusted for inflation, one will see that there is indeed more room to grow for gold.

Adam Hamilton
May 11, 2012

Gold has had a rough time lately, grinding relentlessly lower. Such technical weakness has naturally spawned increasingly bearish psychology. This has led to a fringe view growing in popularity that gold’s mighty secular bull has already given up its ghost. If these new-bear arguments are correct, gold’s secular bull had to peak last August. But was that latest topping gold-bull-climax worthy? Not even close.


As the word describes, “secular” bull markets last a long time. In the stock markets, secular bulls and bears tend to run for an incredible 17 years each! Gold’s latest bull was born way back in April 2001, over a decade before its alleged climax in August 2011. With investors only having 30 or 40 productive years at best over which to invest, any decade-plus secular trend eats up a major fraction of this lifespan.

And naturally the longer any trend runs, the more it influences market psychology. Just a year or two into a new secular bull, skeptics still greatly outnumber believers. But a decade or more later after this same bull has matured, nearly everyone believes. The longer prices trend higher, the more excited investors get about their future potential. So greed and complacency gradually bloom within any secular bull.

But eventually this optimism grows excessive and spawns full-blown euphoria, and a popular speculative mania is born. These rare events are insane. Remember the tech stocks in late 1999 and early 2000? Popular manias marking secular-bull climaxes seduce in everyone, even non-investors. The resulting massive influx of capital ignites vertical gains, leading to exploding mainstream-media coverage of that bull.

The resulting feeding frenzy drives a terminal parabolic ascent. The bull market’s prices rise faster and faster at an accelerating pace until they skyrocket vertically. In the final 7 months alone of the tech-stock mania, the NASDAQ more than doubled! But once everyone remotely interested in buying has already bought in, only sellers remain so the price bubble promptly collapses. The resulting losses are epic.

These parabolic ascents driven by popular speculative manias are the calling card of secular-bull climaxes. That kind of all-in universal euphoric psychology is necessary to suck in enough capital to kill the mighty bull. So when a topping isn’t accompanied by such a monstrous vertical surge and widespread adoration, the odds are great it was merely an interim high and not the bull’s swan song.

While gold was definitely overbought at its latest peak last August, there was nothing even remotely parabolic or universally euphoric about it. Gold’s own history easily proves this. When the topping we saw in August is compared to gold’s last secular-bull climax several decades ago, they are not even in the same ballpark. But this isn’t readily apparent until gold prices are viewed in inflation-adjusted terms.

Thanks to the Fed’s relentless money-supply growth, a dollar today certainly isn’t the same as a dollar in January 1980 when gold’s last secular bull climaxed. Back then when gold first hit $850, the US median household income was under $18k. New houses averaged $76k while new cars were less than $6k! A candy bar only cost a quarter. So directly comparing nominal prices across decades is effectively nonsensical.

So we need to use real gold prices, adjust them for inflation, to make an honest apples-to-apples comparison of last August’s topping and January 1980’s indisputable secular-bull climax. As in my real gold essays, I used the US Consumer Price Index to adjust gold prices over the years for inflation. Yes the CPI is a joke, a government fiction that seriously understates true inflation for political purposes.

But since everyone outside of Washington realizes actual inflation is considerably higher than our lying government claims, the CPI is very conservative. This flawed yardstick seriously understates the actual magnitude of gold’s last secular-bull climax. In these charts this CPI-inflated real-gold metric is rendered in blue, while the raw nominal gold prices are shown in the background in light red for comparison.

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