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Gold’s Built-In Supply Constrictor: Bear Markets Set Up Bull Markets

Palisade Research  ( Original )
APR 27, 2018

Strip away all the bells and whistles, regulation and manipulation, speculation and innuendo. Markets boils down to supply and demand.

One of the reasons gold’s bear markets prepare it uniquely for its bull markets is that when prices are low and rangebound for longer periods of time, exploration falls off. When the gold price isn’t racing higher, companies simply stop looking so hard for new gold.

Because of this, supply drops. Just in time for the next gold price surge. And it isn’t as if you can just press a button to find more gold; exploration is a lengthy, arduous process. So ramped demand meets constrained supply for quite a while before anyone can do anything about it.

Mining for gold is only going to become more expensive and difficult as time goes on – and the last few years has left the sector vulnerable.

Once gold prices explode higher, the mining sector is ill-prepared to take advantage of it. These are the foundations for my favorite type of bull markets – caused from supply destruction.

After years of high prices  – they will eventually crash. Remember, bear markets are authors for bull markets and vice versa.

For example, think about oil from 2008-2014. A barrel of crude was over $100 for years. Then in 2014 and 2015 prices crashed all the way down to $20 – over 80% loss. . .

Once a bear market kicks in, investors leave – fast, and marginal companies go bust. Only the strongest survive until the glut’s liquidated.

It’s very Darwinian during this period of the cycle – the bottoming phase.

Producers that can still squeeze out a profit will do so, but they will be conservative with their reserves, exploration, and construction projects. They’ll cut out anything that isn’t economical – by putting them on hold until prices rise.

Putting it simply, they trim all the fat.

It’s an ugly, unexciting time for the crowd. But historically, this is the absolute best time to get involved and start making big positions.

ORIGINAL SOURCE: Foreign Gold Demand Grows While Mine Supply Decreases – This is the Real Story by Adam Tumerkan at Palisade Research on 4/26/18