It is said that bull markets climb a wall of worry, and that during a bull market investors go through four moods: pessimism, skepticism, optimism and euphoria.
If we use the technology bull market and subsequent bubble of the late 1990’s as a template we can see that these four moods fit rather well.
The stages of a Bull market
Source: Yahoo Finance. Note: Between 6 March 1995 and 6 March 2000 the NASDAQ Composite rose 529%.
During the pessimism phase it’s only the so-called “smart money” that enters the market, people such as Jim Rogers and Richard Russell.
During the skepticism phase the smart money investors are joined by a few institutional investors, hedge fund managers such as David Einhorn, and John Paulson.
As the bull market enters the optimism phase we see more institutions, such as pension funds, enter the market.
Finally, as we enter the euphoric phase, retail investor’s enter the market.
During the bull market in stocks that ran from August 1982 until January 2000, for example, the DOW rose more than 1,500%. However the public didn’t enter the market until 1996, 14 years into the 18 year trend.
So where are we in the gold bull market?
Although gold has risen by 516% since April 2001, I believe we are still in the skepticism phase, albeit towards the end of that phase.
Gold has been climbing a classic wall of worry and despite being among the best performing assets for the past 11 years, the vast majority of fund managers and the public remain largely absent from the market.
I expect the gold bull market to continue until at least 2015. Certainly the factors driving gold remain very bullish.
To find out more about investing in gold, read this article.