The stock market is rife with trends, terminology and technical jargon that is sure to spin the head of a new or novice investor. Indeed, even savvy, experienced investors sometimes find themselves confronted by speculation, and changes brought about by the market environment.
Taking a closer look at market conditions can help novice and experienced investors alike to make the most out of their investment capital. Whether you are working with a brokerage account as part of your 401(K) or you are an active day trader or investment manager, there are opportunities waiting for those who know where to look at just the right time.
What Defines A Bull Market?
Typically, a bull market is characterized by general optimism in economic conditions, which also boosts investor confidence as well as the expectation that stock, bond, and asset prices will consistently tend to go up. In certain bull market conditions stocks prices are generally expected to rise even if they have recently suffered from one or more severe declines.
When it comes to the ever-popular precious metals market, the situation can be quite different. In general bear markets conditions with the ability to last for a prolonged period of time can affect investor confidence creating the speculation that serious slumps will be followed by a short or even long-term period of steady recovery.
When it comes to precious metals, the secular gold bull market essentially started in 1999, and there are some experts who say that it ended at some point 2011. Yet this doesn’t seem to be the case in as the fundamental drivers of the gold bull market essentially remain in place. At the same time, it’s worth noting that the key Fibonacci retracement of 61.8% did not break.
What Defines A Bear Market?
Generally, a bear market is thought of as a prolonged period of time where investors see a consistent decline in prices. It can also extend to a single security as well as a particular type of asset, or a group of securities. In some cases, a bear market can even affect the securities market as a whole.
Determining when the decline starts and when it the appropriate time to react to it is debated by many and can vary depending on if you are currently invested in a short-term or a long-term strategy. One example is the great gold bear market which started in 1980 after the major long-term top.
Defining A Buoyant Market
When it comes to the commodity space, a buoyant market can also be a factor in your short-term and possibly even your long-term investment strategy. It is typically thought of as market conditions that see prices increase gradually and they are reinforced by sufficient signals of strength.
Understanding The Difference Between A Gold Bull Market Compared To A Bull Market in Stocks
Most of the time, it doesn’t take more than a casual glance to see the Dow Jones Industrial Average following an upward trend. Yet this same thing can’t be said of gold. Take for example that gold generally declined during a period of time spanning from 1987 to 2001. This essentially means that investors saw an almost 14-year-long gold bear market. When you also factor in the severe declines gold saw in 1981 it wouldn’t be illogical to say that gold needed nearly 25 years to fully recover.
These trends can have serious implications for investors at all levels. In the past, the stock market seemed to be more-friendly to long-term investors throughout the 1980s as well as the 1990s. Yet the same cannot be said about the conditions of the precious metals market. When taken in a certain light, it can give you the impression that gold will rebound after a serious slump and that there are certain conditions where an investor can suffer a significant long-term loss.
Understanding The Price Of Gold In The Stock Market
Trends and speculation take an interesting turn when we look at how the end of the gold bear market in 2001 also coincided with a gradual weakening in the stock market. There are a few factors that contributed to this including the “2001 dot-com bubble” which caused a stock market collapse after the bubble burst. At that time, investors were looking for secure investments to hedge against losses and insulate their wealth. For many, this included making significant new investments in precious metals and tangible assets like gold and silver. This essentially fueled an increase in the price of gold as the stock market continued to decline. A very similar phenomenon also occurred in 2008 were gold proved to be bullish despite the rumblings of the international financial crisis.
Precious metal investors need to take heed of these historical trends and the existing factors, as they could predict a bull market for gold. In a scenario like this savvy investors will open long positions in precious metals in hopes of profiting as the metals continue to move higher.
Looking On A Gold Bull Market From A Different Perspective
When we take a closer look at bull market conditions, it’s worth noting that they can be perceived differently by some investors who are particularly focused on speculation and applying factors from a short-term strategy. A long-term bull market doesn’t necessarily result in a bear market in the short term. At the same time, a short-term bull market doesn’t necessarily indicate a long-term bear market. With some assets, it is possible for bull and bear markets to exist simultaneously over different periods of time.
Investors in precious metals need to remember that its fundamentals determine the dominant trend. This is true whether it is a long-term, secular bull market as well as a long-term bear market. Indeed, it is possible for a secular bull market to transform into a secular bear market if the fundamental situation on a particular market changes. When this happens, it can lead to an even more powerful technical pattern which does not have the ability to reverse a long-term trend.