The Coming Gold Mania (Part 2)

Senior Technical Analyst
January 4, 2016

In Part 1 we covered Speculative Bubbles and the Intermediate Gold Targets. Here we will look at the new factors that will shape future bubbles and the different precious metal investment vehicles.

The Next Bubble Will Be Different

Social Media

While the core element of a speculative bubble (human emotions) remains the same particular technological and cultural advancements will make the next mania incredibly different. The last bubble I’m aware of was housing in 2005, and then social media powerhouse Facebook had only 5-million monthly users, their monthly visits have grown to over 1-billion. Twitter didn't even exist 10-years ago, and it too realizes over one billion unique visits every month.

Cell Phones

In 1999, the Japanese firm NTT DoCoMo released the first smartphones that achieved mass adoption within a country. The BlackBerry didn’t gain popularity in the U.S. until about 2006. In 2007, the Apple IPhone was released, but features like FaceTime didn't come around until 2010. Few people were texting in 2005 when the last bubble burst, but now according to Bloomberg's Betty Liu more than 8-trillion text messages are sent every year.

Things are Different

It is unknown how the above factors will influence the next speculative bubble. Communication is immediate and social integration is vast. A celebrity can Tweet and within seconds millions of followers receive it. These modern advances will only amplify the underlying fear and greed characteristics of a speculative bubble, potentially driving the next one to unimaginable levels.

Precious Metal Investment Vehicles

Physical Bullion - The gold and silver mania won’t fully begin until prices consistently breakout above $2,000 in gold and $50.00 in Silver. As gold becomes increasingly difficult to afford, average investors will shift to other areas. Silver has a very compelling story and as reports of stockpile reductions, supply shortages, and its vast industrial applications, prices will surge. Quality government issued silver coins will be desirable; many will see 100%+ premiums over spot. Silver rounds and bars will be less desirable as counterfeiters will prey on unsuspecting and uneducated buyers; people will grow leery.

ETF’s: - For those that want to trade the metals ETF’s work well. You don’t have the cost of shipping bullion, lag times and there are little to no premiums over spot. There will always be questions regarding their physical holdings, and you can’t take delivery.

Physical Metals Stored Offsite - Companies like BitGold allow savings in gold grams, and you can use that gold to make payments. There are no storage fees, and customers can redeem their gold having it shipped to them. There are transaction fees, but I believe their business model is excellent. They will become very popular as gold gains favor and as they expand their payment partners.

Individual Miners - You must do your due diligence to be successful buying individual miners. Political risks and mine disputes could easily compromise an entire company or certain mines. Most prospecting enterprises and explorers will ever reach production or make any money. ETF’s such as GDX, GDXJ and SIL will outperform the vast majority of individual stock Picker holdings.

Leveraged Funds - I would avoid using leveraged ETN’s such as NUGT and DUST, the decay problems are dreadful. Contact me if you would like to know more about these issues.

Penny Stock Mania Theory - As gold and silver prices climb ever higher, physical bullion will be increasingly difficult to get, and premiums will be exorbitant. New investors won’t be able to afford bullion and, therefore, may look to mining stocks for success. Similar to the “Dot-com” bubble worthless mining stocks could go from pennies to tens of dollars as novice investors pile in. They will be more interested in share price (very cheap) than the quality of the asset. Rumors will abound of drill results in far and remote locations; shares will explode higher. Average people will be posting on Facebook and Twitter about their hot stock tips or of gold exploration tales.

Note: More people than ever have access to their individual retirement accounts and will be tempted to use that money to become rich, please don’t!

I don’t own penny miners nor do I recommend them. I am not affiliated with BitGold nor do I own their stock. Please consult with a licensed and qualified professional before making any investment decisions.

The final part of this series will look at the presidential correlation, what causes gold and silver to climb higher (not just inflation) and when to look for at the 8-year cycle low in gold.


Courtesy of

Pierce Wellington is the Senior Technical Analyst and a head trading consultant. After making unwise decisions early in his trading career, he developed a passion for Education, Technical Analysis and Trading Discipline. He has successfully traded the Gold and Silver markets for over a decade and is a Chartered Market Technician (CMT).

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.
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