A New Gold Bull Market? — The Markets to Prioritise and Avoid in 2021

A New Gold Bull Market? — The Markets to Prioritise and Avoid in 2021

Dear Reader,

Well, 2020 is over and it was not all bad news, despite the pandemic and the new economic depression. It turns out that 2020 was the best year for gold and silver price increases since 2010.

Gold rose 25.12% and silver rose 47.82% last year. Not only was 2020 a great year for gold, but it continues the new bull market in gold, which began on 16 December 2015 and has now entered its sixth year. The overall gain in this bull market from 2015 to today is more than 74% (based on current market prices).

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Historically, gold bull markets have produced their largest price gains in the late stages

The 1971–80 gold bull market lasted just over eight years. The 1999–2011 gold bull market lasted 12 years. Taking a simple average of those two prior bull markets suggests that the current gold bull market will last 10 years until 2025.

Of course, the prior experiences do not necessarily indicate how this bull market will run. Gold prices could spike dramatically higher long before 2025. In any case, the historical evidence suggests that despite strong gains in the past five years and especially in 2020, the best is yet to come.

The bigger picture is that the gold price right now is range-bound. Ignoring the two brief spikes and one dip to US$1,780 per ounce on 30 November 2020, gold has traded exclusively in the range of US$1,800 to US$1,900 per ounce for the past three months.

That’s a 2.7% range above and below the central tendency of US$1,850 per ounce. 2021 has just begun and it will be a long and challenging year for investors. Based on a combination of 2020 performance, continuing supply/demand factors, and an expectation of sharply lower interest rates ahead, we see both gold and silver posting strong gains in 2021.

Investors who do not have an allocation to gold yet (I recommend an allocation of 10% of investible assets), you may have missed some gains, but I suspect even bigger gains await.

If you don’t have an allocation to physical gold, the time to act is now.

Chinese stocks are being delisted and excluded in the US,
with more to come

As described in this article, the S&P 500 and the Dow Jones Industrial Average have just removed several prominent Chinese companies from their widely followed indices. This removal was precipitated by an Executive Order that limited the number of shares of these companies that US investment firms can buy. Once US investors were limited in their purchases, the companies themselves were no longer representative of normal investment trends, so they were dropped from the indices.

This move was not the only bad news for Chinese stocks lately. The New York Stock Exchange delisted several Chinese tech companies that were either declared to be national security risks or that provided inadequate financial disclosure. Chinese regulators derailed the Ant IPO, which would have been one of the largest in history.

Chinese billionaire Jack Ma, the founder of Alibaba (sometimes called the ‘Amazon of Asia’), has gone missing. His exact whereabouts are unknown, but he is believed to be under some kind of house arrest at the insistence of the Communist Party of China because of his outspoken criticism of the Chinese regulatory system.

Chinese stocks are caught in a crossfire

On the one hand, US regulators are cracking down on Chinese companies for national security reasons. On the other hand, Chinese Communists are cracking down on their own companies because they have been exhibiting deviance from party doctrine.

This all comes on top of the fact that the entire Chinese corporate sector is overleveraged, non-transparent and largely corrupt. Bond defaults are soaring, and corporate bankruptcies are on the rise. China looks like a good market to avoid. Stock price gains will prove to be ephemeral. The fundamentals paint a much darker picture.

All the best,

Jim Rickards Signature

Jim Rickards,
Strategist, The Daily Reckoning Australia

PS: Why Australia is set to become the next ‘gold epicentre’ — which could result in a HUGE spike in Aussie gold stock prices. Click here to learn more.