Asset bubbles are a repeating theme. In 2017, bitcoin entered a bubble driving prices from $1000 to $19,000. The recent Bubble in Tesla marked a rally from $70 (post-split price) to over $500 in less than 6-months. Our work supports a bubble in gold and precious metals later this decade. This article will explore the various aspects of a bubble and how one could prepare.
Below are the three ingredients often associated with bubbles.
- A disruptive force that triggers speculation.
- A believable story that gains mass appeal.
- Widespread adoption and the fear of missing out.
The internet fueled the 1990s Dot.com bubble. Blockchain technology stoked Bitcoin, and the Electric Vehicle (EV) revolution triggered the recent bubble in Tesla. Next, I believe a global currency crisis could trigger a bubble in gold that sends prices to unthinkable levels.
Governments around the world have made it clear they will continue to print money. Eventually, they will have no choice but to default and restructure their debt. A new monetary system (likely digital) will emerge, and I believe this will be the driving force behind the bubble in gold.
Velocity of Money
Inflation and supply shortages will only get worse. In the latter phase of the monetary crisis, the velocity of money will increase sharply. Instead of hoarding currency, people will spend their dollars quickly – fearing widespread shortages and higher prices.
Physical Bullion Coins
Finding quality bullion products could become difficult. Partly because of resource shortages but more likely because of a demand shock. What is a demand shock? That is when a rapid influx in demand overwhelms supply for months or even years. Any supply that hits the market is quickly gobbled up – no matter how high the price. We are seeing some of this now.
I prefer government minted coins over bars or rounds. Why? They are recognizable and harder to counterfeit. There will likely be numerous fake coins and bars circulating near the end of the bubble – you will want to have something dealers and individuals recognize and trust.
When to Sell
Timing the exact top of a bubble is difficult. Towards the end, prices will often double in a month or less. People who have never bought gold or silver will be panicking to get some (fear of missing out). You will overhear conversations in the grocery store about a mining stock or a new “gold-backed” cryptocurrency…that is when you know we are getting close. I spotted the final bubble phase in Bitcoin and Tesla about two weeks before they peaked.
How to Prepare
I prefer a long-term accumulation strategy – trying to trade volatile markets is a recipe for disaster. Sure, you may have a good trade here or there, but eventually, you are going to get stung. I learned this the hard way. After adopting my long-term approach, I sleep better at night and have almost zero stress. Our gold cycle indicator was designed for just this.
I think gold prices will enter a bubble later this decade – it probably won’t be until after 2024, so you have time to prepare. Consider physical metals and try to reduce stress.