Why Gold's Bull Market Is Still Young
Looking at gold through a wide range of yardsticks clearly shows that its bull market is still in the early stages and just getting started.
I’m a big fan of finding and using unique ways to value assets to determine whether they are cheap or not. In the case of precious metals and other commodities, this isn’t as straightforward as it is with assets like stocks, bonds, or real estate, where you can use simple metrics such as price-to-earnings or price-to-book value ratios.
This means we need to get creative and make comparisons to other important assets or economic data. The absolute price of an asset does not determine whether it is overvalued or undervalued. For example, there have been times, like in 1980, when gold at $800 was very expensive, and other times, such as in 2020, when gold at $1,600 was a bargain.
That’s why it helps to compare precious metals to meaningful yardsticks. In this report, I’m going to share five specific yardsticks: U.S. dollars, U.S. inflation, M2 money supply, the Dow, and the national debt, and use them to make the case that gold’s current bull market is still very young, relative to the last secular bull markets in the 1970s and 2000s, and has many more years ahead of it. While this report focuses solely on gold, I plan to publish a similar one on silver soon.
For the purposes of the exercises in this report, the dates I’m using for the two prior secular gold bull markets are August 1970 to January 1980 for the 1970s bull market, and April 2001 to September 2011 for the 2000s bull market. These timeframes are widely accepted as the official start and end points of those respective bull markets.
As for the current secular gold bull market, while there is some subjectivity and debate around when it began, I’m using October 2022 as the starting point. I believe this is well justified based on where gold bottomed, both in dollar terms and relative to the other four yardsticks used in this report. This can be clearly seen in the charts I’ve included.
I also believe that, while October 2022 marked the bottom and the start of the new secular bull market, it was in March 2024 that it truly gained momentum and vibrancy. I plan to write another piece soon to explore that nuance and distinction, but for the purposes of this report, I’ll use October 2022 as the starting point.
Let’s begin with the most rudimentary reference point: the spot price of gold in U.S. dollars. During the secular bull market of the 1970s, gold rose by 2,400% over 113 months. In the 2000s secular bull market, it gained 630% over 125 months. By comparison, the current secular gold bull market is up only 147% over just 36 months. This is a clear indication that the current bull market is still in its early stages relative to the previous two, and I believe it has much further to run.
Next, let’s examine the real price of gold, which is gold adjusted for inflation using the U.S. Consumer Price Index (CPI). This is a more meaningful metric than the nominal price shown earlier because the key question is not how much gold has increased in absolute terms, but whether it is keeping up with inflation. After all, gold is the best hedge against inflation over the long run.
During the secular bull market of the 1970s, the real price of gold rose by 1,125% over 113 months. In the 2000s secular bull market, it gained 486% over 125 months. In contrast, the current secular gold bull market is up only 128% over just 36 months. This further supports the view that the current bull market is still in its early stages compared to the previous two, and I believe it is just getting started.
Now we will look at gold in relation to another measure of inflation: the U.S. M2 money supply. The money supply may be an even better indicator of inflation than the CPI, which is known to understate actual inflation (learn more). Moreover, growth in the money supply is the underlying cause of inflation itself. As Milton Friedman, the Nobel Prize–winning economist, famously said, “Inflation is always and everywhere a monetary phenomenon.”