Are We In A Secular Or Cyclical Gold Bull Market?
By Joe Foster, Portfolio Manager and Strategist, VanEck
Bull markets can be classified as either secular (long term) or cyclical (bull phases within an overall bear market). The question is: In which are we currently?
Gold Bull Markets 1971-2016
Source: Bloomberg, Barron's (month-end prices), VanEck.
There have been six gold bull markets since the U.S. severed the direct link between the dollar and gold in 1971. We believe the current bull market looks similar to the period 2001-2008. These years were, in particular, a period of profit margin expansion when cost inflation was subdued for gold miners. Now, similarly, mining costs have subsided and there are relatively no significant inflationary pressures. Other mining sectors ― coal, tar sands, copper, iron ore ― are depressed.
We believe higher gold prices will encourage increased mining activity, but that the gold sector alone cannot generate cost pressures without increasing activity in other mining sectors. In fact, we would use copper as a barometer of inflationary pressures in the mining business. With copper currently at USD 2.09 per pound, we would not anticipate inflationary pressures until copper trades above USD 3.00.
About the Author:
Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.