When is the best time to sell your gold? This is an important topic because investors tend to spend a lot more time considering when to buy than planning exit strategies. The decision to sell an asset should be based on three main factors; technical analysis, fundamentals, and human psychology.
A previous post discussed the concept put forward by sir John Templeton. Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. This led to the conclusion that buying should occur mainly during the pessimism and skepticism phases and the euphoria stage should be considered as a time of staged selling.
How do we know when we are in the euphoria phase of a bull market? Euphoric highs can occur at different timescales and vary in magnitude.
In the above chart, 2012 marked the end of the euphoric phase of the bull market that started in 2000. That was followed by a pessimism phase when gold price fell by almost 50%. The breakout above $1400 marked the start of the skepticism stage. On a large timescale, if we assume that gold is closer to the start of a bull market than it is to the end, then there is some time before a macro euphoria phase occurs for gold.
Features of gold euphoria
What can we expect to see during the macro gold euphoria? Here are some of the signs to watch out for.
During the euphoric phase, the mainstream media will absolutely love gold, with nothing negative to say about it. National newspapers will have special sections dedicated purely to the precious metals and mining stocks. Gold related advertisements will be prevalent, both in the newspapers and on television.
Rick Rule is the President and CEO of Sprott US holdings, a billion dollar company. For years now, Rick has very generously given his time to be interviewed on small youtube channels, some of which only have a few hundred viewers. Rick has not appeared in the mainstream media for years. That will all change when gold hits the euphoric phase. Rick will be a regular guest on mainstream tv shows and will be treated like royalty.
Currently, outside of the tiny gold community it is hard to find anyone who has even heard of the likes of Rick Rule, Peter Schiff, or Mike Maloney. However, if you asked any random person about the Kardashians, they are almost certain to at least have heard of them, if not know their lives in great detail. In the euphoria the gold guys will become more like celebrities, even household names. If it ever gets to the point that the gold guys are making reality tv shows, that’s a sure signal to sell sell sell.
The internet can also give us a few pointers about the level of retail interest in a particular asset class.
The chart above shows the search volume for the term “gold investment”. Isn’t it interesting how the peak search volume corresponds to the peak price in gold in 2012? During the gold bear market, search volumes dropped dramatically and remained low until 2019. The scale on this chart is not absolute, it is a relative scale. The highest search volume is marked as 100 and the remaining data is scaled relative to that. Currently, search volume for this term is half the level it was in 2012. That suggests that the gold market is not in a major euphoria at the moment.
Youtube statistics can also be a useful indicator. Most youtube channels that discuss gold and silver have viewers and subscribers in the thousands to tens of thousands range. during the euphoric phase, the viewership of these channels will explode into the hundreds of thousands, even millions.
Precious metals conferences
Conferences about gold, silver and mining stocks will be hugely popular. At first there will be standing room only, then they will move to larger venues to accommodate everyone that wants to attend.
For years now, it has been common for mining stock executives to man their exhibition stands. When walking around the conference venues, it is usually easy for attendees to meet and chat to senior mining executives. During the mania phase it will be a different story. It will be difficult for the general public to get anywhere near senior mining executives, and instead the companies will hire supermodels for their exhibition stands.
Rick Rule has mentioned how, during gold bear markets very few people were interested in talking to him during the breaks, and he could visit the bathroom in peace. However at the height of the last bull market, many attendees wanted to catch him during the breaks and some would go as far as to follow him into the bathroom to talk to him. If you see a queue of people following Rick Rule into the bathroom, then start thinking about selling.
During the gold euphoria, new mining stocks will come out of nowhere and the number of listed mining stocks will multiply. During the last uranium bull market, the number of uranium stocks went from something like 30 to hundreds. Additionally, more gold mining stocks will enter the main indices (e.g. S&P500). Unfortunately, pump and dump schemes will also become prevalent.
Gold mining valuations will reach dizzy heights and fundamentals will no longer matter. Poor drill results won’t matter, and the stock price will still continue to rise. Mining companies will have no trouble obtaining finances for their operations.
Retail involvement in gold
One of the classic features of asset euphoria is the enthusiastic involvement of retail investors. Precious metals and miners will be among the top stocks on the Robinhood trading platform. As prices rise rapidly, you will hear stories in the papers about people who have mortgaged their house to invest in gold and mining stocks. If your taxi driver starts giving you hot mining stock tips, that is a sure sign of the euphoric phase.
Crazy, irrational events occur during the euphoric phase of a bull market. The signs discussed here could realistically occur if gold investment becomes a mania.
The problem is that these signs are not all visible at one specific time point, rather it is a process. Although the signs of euphoria won’t indicate the exact top of the market, they do provide a guide as to to when to start at least thinking about selling your gold in a staged manner.