The Next Phase in the Precious Metals Bull Market
BY CHRIS PUPLAVA
While gold and silver bullion have fallen considerably since the highs reached in 2011, and mining stocks have fallen even more, I believe the weakness behind much of this move is due to the transition from the bull market in precious metals to its next phase. It is my contention that the move in precious metals since late 2008 through 2011 was largely a result of the expansion in central bank balance sheets and the perceived threat of runaway inflation. Since 2011 we’ve seen economic growth improve and inflation rates across the globe subside. As a result, investment banks and market strategists are arguing against owning gold, and making the case that, with a lack of inflation and an improved economy, the need for owning gold as an insurance hedge against inflation and currency debasement is no longer present. I strongly disagree.
Potential vs. Kinetic Energy
Before getting into the nitty-gritty data, let’s quickly brush up on our physics by understanding the difference between potential and kinetic energy. An object at the top of a hill has stored energy as it rests. However, as the stored energy is released when gravity acts upon the object, the stored energy becomes kinetic (active) energy. The energy in a drawn bow before an arrow is released is another example of potential energy (stored); releasing the arrow transforms the arrow’s potential energy into its kinetic energy (active energy, or the arrow’s flight).