Are we in the third stage of the gold bull market - the stage when the increase in the gold price accelerates and provides serious profit opportunities? Based on the previous high in Jan 1980 when the price of gold doubled in 2 months (and silver tripled) we need to be constantly vigilant for the signals.
Why should we be so careful? Just look what happened after both metals peaked.
They both plummeted in the space of a month.
We could see the same scenario re-enacted.
And if that happens, many excited investors will miss the peak! Here are some of the signs to watch out for that could signal the next manic move.
1.
The fall of the dollar, which is expected to accelerate over the next few months 2.
Banking and financial institutions getting onto the band-wagon.
For example, Barcleys is already recommending gold as an investment with upside potential going into 2010 3.
Frenzied selling of second-hand gold jewelry.
Remember the silver selling mania of 1980.
Sellers of second-hand gold are increasing again, and so are purchasers.
An asset that most people would not have considered is becoming a much talked about investment.
4.
Currently gold buyers and investors outnumber sellers, apparently by a factor of 10 to one.
But as the media become more focused on the rise in the gold price, then the buying activity will start to get hyped up and frenzied.
Then when you notice its becoming a topic of party chat, you know we are on a roll.
And when paper-boy, or the local shop assistant tell you to buy gold, you can be fairly certain gold is getting close to topping out.
5.
Hedge Funds are shifting away from ETFs and into physical gold.
This enables them to be 100% sure of holding a tangible asset with no counter-party risk.
This poses another question about the safety of investing in gold and silver ETFs - the subject of my next article.
6.
The Chinese are reputed to be great gamblers and great investors.
China is encouraging its population to buy gold and silver.
If you think about a population of over 1.
3 billion being encouraged through media and advertising to save their money and buy precious metals, you can imagine the effect this could have on the gold price once the manic phase sets in.
The reputed gambling and investment skills of the Chinese could be the driving force that sends gold into the stratosphere.
Gold is now far simpler to own and trade.
Compared to the last gold bull market there could be many thousands of private investors in ETFs and similar investment vehicles.
This could even prolong and further increase the gold price rise.
In my next article I will examine the possible dangers posed by the precious metal ETF's and consider more secure methods of investing in gold and silver.