6 Reasons Gold Is Headed For A Major Bull Market...Soon

The gold price has been trapped in a steady downtrend. So, why should an investor buy gold now?

Because recent gold sector action looks like a bottoming process. And that means the market is ripe for reversal.

As a market analyst, I’ve watched many off-the-radar trends that suggest the fuse is lit on the next gold bull market. While traders have chased stocks, gold has quietly positioned itself for a major move.

Here are the six reasons I think gold will soon spike higher...

Investors Are Buying Record Amounts Of Gold

This is very curious: people will sell an asset when its price falls. That’s just normal investor behavior.

But something very different has happened in the gold market.

First, look at the number of gold Eagles bought this year—a year that has seen 14 new lows in the gold price (through November 30).

Meanwhile, global central banks continue to buy record amounts of gold bullion.

And let’s not forget China—they’re the world’s largest gold-buying country, after all. This year, investors have already withdrawn the most physical gold from the Shanghai Gold Exchange since its creation.

There are other examples, but the bottom line is that this is wildly contradictory behavior. Gold now stands at its lowest price since 2010—yet investors are buying record amounts of gold bullion.

Why It’s a Bullish Sign for Gold:

This data suggests that once mainstream investors return to gold, supply will be unable to meet demand—and that will ignite the price.

Gold Will Win In Deflation

Deflation has gained some serious ground over the past 12 months…

• Crude oil was down as much as 52%
• The national average price of gasoline has fallen 44%
• Copper is at a six-year low
• The Baltic Dry Index—a key measure of shipping costs for commodities—just hit the lowest point in its 20-year history
• An annual reading of the CPI has been negative only twice since the mid-1950s—during the 2008/09 financial crisis, and earlier this year
• Inflation in the UK was negative in September

Most investors believe that gold is an inflation hedge. True enough. But to assume that gold will do poorly in a deflationary climate is a mistake.

Remember all the businesses, investments, and bonds that failed (or threatened to) in the 2008-09 financial crisis? If deflation takes hold and we see a second financial crisis unfold, many investors will seek a safe haven for their money—and gold will be one of them. Remember: even though gold crashed in late 2008 with all other markets, it ended the year with a 5.5% gain… in the darkest days of the crisis.

Why It’s a Bullish Sign for Gold:

Just the fear of deflation and the potential fallout could push the greater investment community to start, or raise, their stake in gold. This alone could kick-start a new bull market.

Gold Is “Cheaper” Than Stocks

The gold/S&P ratio is one way to gauge which is a better value at any given time. Buying one or the other at extremes is a sound way to profit—because gold and stocks are usually uncorrelated assets.

Here’s the ratio (gold price divided by the S&P) since 1975:

Which one offers better value today—gold or stocks? This chart screams that it’s time to lean away from stocks and toward gold.

Market pundits claim that stocks are way overdue for a correction. But it’s more than just a correction that’s on the horizon; it’s been six years since the last full-blown equity bear market. And a bear market grinds the nerves far longer than a pullback.

Why It’s a Bullish Sign for Gold:

Gold is set to benefit from the inevitable retreat in equities.

The Gold Bear Market Is Over-Stretched

Gold has now recorded its second-longest bear market in modern history.

Raging bull or punishing bear, no market trend lasts forever. Any reasonable analysis from an impartial investor can see that gold’s downtrend is a lot closer to its end than its start.

Why It’s a Bullish Sign for Gold:

Historical data argues that we are nearing, if not at, the end of the gold bear market. That makes buying gold now a low risk action, even if the price were to hit $1,000 or $950.

Gold Is Near An All-Time Low

This claim may have you scratching your head, as gold sold for less than $300 as recently as 2001. But just like home prices, food costs, and your salary, we have to adjust the gold price for inflation to determine its real current value

To do that, we could use the government’s Consumer Price Index (CPI). That, however, is a bad idea. The formula has been changed at least 13 times since 1980. Each revision reduced or erased the impact of higher prices for the things we all use, like food, health care, rent, and tuition. As a result, many protest that the CPI doesn’t reflect true inflation as felt by the typical consumer.

So I asked John Williams of ShadowStats to calculate the gold price using the 1980 formula. Check out the gold price using a more accurate measure of inflation.

The price is nearly as low as it was in 1970!

Why It’s a Bullish Sign for Gold:

Using “real world” inflation math shows gold is near an all-time low. The potential gains ahead could be stunning.

The Risk Of An Economic Shock Has Spiked

The odds of an acute shift in the monetary or economic landscape—whatever its form—are high. That means a prudent plan to shield one’s wealth is the order of the day.

Not every scenario in the following list will arise, of course. The real question is whether we can escape all of these possible outcomes (and any more you can think of)…

• What happens to variable rate mortgages, the real estate market, high-debt businesses, and the US balance sheet when the Fed raises interest rates?
• How will the average investor react to a big stock market pullback or a bear market? Will they recall 2008 and exit in a mass frenzy? And how will the Fed respond?
• What happens if the US debt load overwhelms the Fed’s printing efforts? Will they launch another round of QE (or whatever creative name they use)?
• What fallout will we see from zero percent interest rates?
• What if the current trend of Treasury sales by foreigners—already at a record pace—persists or picks up steam?
• What if traders and investors lose confidence in the Fed’s ability to “manage” the economy?
• What if politicians can’t make real fiscal reforms? Would the Fed be forced into monetizing the deficit spending and trigger inflation?
• How would global central bankers react if deflation hits all sectors of society? What would investors and citizens do?
• What happens if the economy returns to moderate or robust rates of growth—and spurs inflation?

Let’s be honest: The chances of a total escape are small. At some point there will be a reality check. Central bankers have painted the world into a corner. The world won’t end, but it will forge some type of systemic change.

The real scare? A viral sequence. All the above events have influence on each other. It will only take one or two of these themes to surface to set off a chain of crises.

Why It’s a Bullish Sign for Gold:

Any of the outcomes listed above could drive investors toward gold—and spark the next bull market. Gold is the asset that will see you through the best or worst case scenarios. It has historically been a go-to asset during periods of major economic or monetary change.

Now Is One Of The Best Times To Buy Gold

As I write, gold has fallen 44% from its 2011 high. That’s a pretty good holiday sale. Let’s call it a Gold Friday sale.

But it’s not just the “sale” price that makes gold attractive. The current facts about gold point to a big turning point…

• Coin purchases, central banks, and China are at record level demand. Supply won’t be able to meet demand when mainstream investors enter this market.
• Deflation—and all the nasty things that can come with it—will act as a catalyst for the gold price.
• The gold/S&P ratio shows gold is near multi-decade lows. Gold will be a direct beneficiary of the next downturn in stocks.
• Today’s gold bear market is the second longest in modern history. That implies we are near its end, and at the cusp of the next bull market.
• The inflation-adjusted price is near an all-time low, meaning the bigger risk in price is to the upside.
• The risk of an economic or monetary shift is growing. Gold will be a natural go-to asset in that turbulent period.

I suggest buying gold now—while the price is down and before the next bull market kicks into high gear. The easiest way to do that is with gold bars; here’s how to buy gold bars, including the five easy steps to avoid the pitfalls.

This article was originally published at the Hard Assets Alliance.