Lions and bears and bulls, oh my.
Forget a visit to the zoo – what do these animals have to do with your financial future? Let’s break down what bear markets are, what bull markets are, and what each means for precious metal investors.
What Is a Bear Market?
Bears mess up campsites. They can maul you to ribbons. They sleep for months in the winter. In terms of stocks and indexes investing, they’re also bad news.
Remember the Great Recession of 2007 to 2009? That was a long-lasting bear market. Think of a bear mauling its prey to the ground before feasting on it. That’s what a bear market does to stocks and indexes.
A bear market happens when securities prices fall 20% or more from recent highs. They’re associated with overall market declines, or when the S&P 500 takes a dive.
If individual securities or commodities slip 20% or more for at least two months, they’re in a bear market, as well.
How Long Do Bear Markets Last?
A bear market can last for a few weeks or, as we saw a decade ago, several years. Even if stocks and indexes pep up for a bit, if the gains aren’t long-lasting, it’s still a bear market.
What Does a Bear Market Mean for Precious Metal Investors?
Bear markets in the economy are exactly what precious metals investors are prepared for.
In a bear market, stockholders tend to sell off their stocks as values are declining, so they don’t lose more money. At this time, to balance their portfolios, they’ll turn to gold and silver as safe assets for protection. Historically, when the market goes down, the price of gold goes up. This “see-saw” effect is evident in the surge in gold prices when the economy was deep in recession after the subprime mortgage crisis of 2008.
Even in a bear market for stocks and indexes, gold and silver may experience an increase in value, which brings us to (you guessed it!) a bull market.
What Is a Bull Market?
When attacking, bears swipe down, whereas bulls thrust upwards with their horns. This animal analogy applies to markets. A bull market sends investment prices rocketing upwards, which is great for investors.
As a counterpoint to a bear market, a bull market typically defines a situation where investment prices rise by 20%, usually after a drop of 20%. During this time, investors are more eager to get in on the market to profit, since prices are strong.
How Long Do Bull Markets Last?
Just like its counterpart, the bear market, a bull market designation is usually applied when a large portion of security prices are rising for extended periods of time. Like bear markets, bull markets can last several months or years. In March 2019, the bull market for American stocks entered its 10th year.
What Does a Bull Market Mean for Precious Metal Investors?
A bull market can mean a few things for precious metal investors. Generally, gold prices tend to be lower in a stocks and indexes bull market, making it a great time to buy precious metals. Here’s what else:
- Investors are enjoying high returns, so they have the means to diversify portfolios with precious metals.
- Good performance in stocks and indexes can also mean that some investors focus on those, instead of precious metals. The cost of precious metals might stabilize, or even take a dip during a bull market, but the reverse is going to be true when the bear market rears its head.
- Bull markets related to stocks and indexes are bound to dip at some point. When they do, precious metal investments tend to offer a safe and stable investment. Investors enjoying the effects of a bull market will still want to invest in precious metals to stay afloat when the market inevitably falls prey to the bear.
- The promising highs of bull markets are enough to cause a too-good-to-be-true, uncertain, and dreadful feeling among investors, which causes a bear market. That’s why one asset manager declared on Fox News Business that gold was a solid investment in late 2018, amid rising concerns about a recession on the horizon.
Even when things are going well in a bull market, a diverse portfolio is a must for when the markets turn.
The Bottom Line: Bull, Bear, Who Cares — Precious Metals Rule
Even when stocks and indexes are relatively stable, history has shown that the price of gold tends to rise. Just look at what happened in the 1970s.
While the value of the S&P 500 and Dow Jones stayed pretty consistent, the value of silver and gold experienced increases in value.
So bear market, bull market, whatever’s going on with stocks and indexes, there’s one investment you can count on precious metals. They’re great to have at any time, no matter how crazily the other markets are performing.
Need more information about the future of gold and silver markets, from bull markets to bear markets and everything in between? Contact Republic Monetary Exchange today!
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