Source: Forbes
In precious metal market history, there are times were contrarian traders made enormous fortunes by accumulating high-risk high-reward precious metal stocks, such as in 2001, 2008, and 2015. This seven-year cycle is predicted to happen again in 2022. Analysts believe precious metals bottom is going to take place and will start a bull run despite the market general sentiment toward precious metals such as gold and silver.
The first time this event happen in 2001, it was called the Brown Bottom. The precious metal market at that time is surrounded by a crisis of many things, starting from the 9-11 and the dotcom stock market crash. Anticipating a terrible disaster, Gordon Brown, who was the UK Chancellor of the Exchequer at that time, sold around half of the UK’s gold reserves in a series of auctions which eventually push the gold price to fall significantly, below $300. This is why it was called the "Brown Bottom".
However, as history progressed, this turns out to be the signal for a strong gold price movement move to briefly trade at the psychologically significant $1000 per ounce region by early 2008. Many traders made a significant profit when the peak bull market arrived in 2005-2007, where they earn at least twice if they buy at the right time in 2001. This situation pushed the Global Financial Crisis (GFC) to force investors to liquidate their gold holdings with huge gains, which creates another bear market and push the price of bullion down to $700 in October 2008.
Source:CNBC
Shortly after that, we see another peak at $1925 three years later once the Federal Reserve re-capitalized the U.S. banking system. However, this historic rise is accompanied by a brutal bear market which makes general investors turn away from the precious metal market and allow the bear market four-year cycle to happen again. A few years after that, precious metal markets had been brutally attacked by an extreme 85% decline from the highs in 2011 into the end of 2015, with the same scenario as Brown Bottom happening again.
At the time, investors were fearful of gold losing the critical $1000 level as the Fed was trying to raise interest rates for the first time since the GFC took the Fed Funds rate to zero. On the other hand, miners were in the process of creating an accumulative six-month base to prepare for the upcoming difficult market. One month after the Fed trigger the interest rate hike, shorts began to take massive gains once the gold price bottomed at $1045.
In 2022, a similar situation is happening again, with the mining industry offering a similar setup to the significant 2015 low. Analysts believe the $1675 level is the key price where the critical support line will trigger the new bear market. However, contrary to what most analysts and pundits believe, it looks like the support is still very strong, which can be a sign for contrarian traders to take advantage of once again.
Source: Livemint
If you are one of those contrarian traders, right now might be the best time to strategize your gold stock buying strategy. While buying physical gold or silver is a good choice, you can also choose an alternative such as Digital Gold. Compared to stocks or index funds, you technically still own physical gold when you buy a Digital Gold token. One token is backed by a gram of gold secured in the bullion vault where you can verify it easily.
Buying a Digital Gold token offers the flexibility of trading a gold stock while at the same time guaranteeing that you own physical gold. This will solve the issue of lack of liquidity, or time-consuming trading activities. In case you enter at the wrong time, or if the trend is not going the way you hope it would be, it is easy to liquidate the token and at the same time easy to buy it again.
Make sure you don't make the same mistake as the Indian buyers who failed to capitalize on a good opportunity to buy gold because they can't access the market easily.
This article is written by joniboini.