Recently, while reviewing the long-term trend of gold, I discovered a very interesting pattern. Over the past 55 years, the price of gold has risen from $35 to over $5,100, and behind this historical trend lies the story of three major bull markets.

Since Nixon ended the gold standard for the dollar in 1971, gold truly began to be priced in the free market. The first bull market (1971-1980) surged 24 times, from $35 to $850, mainly driven by a crisis of confidence in the dollar combined with an oil crisis. Later, the Fed aggressively raised interest rates by over 20%, causing gold prices to crash 80%, and then spent a full 20 years trading in the $200-$300 range.

The second bull market was even more intense. After the dot-com bubble burst in 2001, gold started at $250 and rose to $1,921 by 2011, a cumulative increase of over 700%. During these ten years, a series of macro shocks occurred, including 9/11, global anti-terrorism efforts, the 2008 financial crisis, and US QE, each triggering a rise in gold prices. After the European debt crisis erupted in 2011, gold reached its peak for the cycle, then entered an 8-year bear market.

We are now in the third bull market. From the low of $1,200 in 2019 to over $5,100 today, this rise has exceeded 300%. Last year, factors like dollarization, central bank gold purchases, geopolitical turmoil, and persistent inflation stacked together, pushing gold to new all-time highs repeatedly. In just the past two years, it surged from over $2,000 to more than $5,000, an increase of over 150%.

Careful observation of these three bull markets reveals common causes: always a credit crisis combined with loose monetary policy. Each started with a collapse in confidence in the dollar, then experienced phases of slow rise, acceleration, and overheating, lasting on average 8-10 years, with gains of 7 to 24 times. Bull markets usually end due to aggressive tightening and inflation control.

But this cycle is different. Global government debt has already reached sky-high levels, and central banks can no longer raise interest rates significantly like in the past. The traditional clean and decisive tightening cycle may be hard to appear; more likely, gold prices will fluctuate wildly within a high range for several years. The true signal of an end will only come when a completely new global monetary credit system emerges.

Comparing gold and stocks, from 1971 to now, gold has increased 120 times, while the Dow has risen 51 times, making gold seem more explosive. But the key is that from 1980 to 2000, there was no movement at all, with prices trading sideways in the $200-$300 range. If you bought then, waiting 20 years was essentially a waste. How many 20-year periods does one get in life?

Therefore, my view is that gold is a very good investment tool, but it’s more suitable for trading in waves during trending periods, rather than simply holding long-term without action. Bull markets in gold are often accompanied by macro crises, while bear markets tend to be long and sluggish. Catching the right cycle can lead to big gains, but missing it might mean lying flat for many years.

Additionally, since gold is a natural resource, its extraction costs increase over time. Even if the bull run ends and prices fall, the low points will gradually be higher. This means you don’t need to worry about it becoming worthless, but you should understand this pattern when operating.

There are many ways to invest in gold. Physical gold is convenient for hiding but not easy to trade; gold certificates and ETFs offer better liquidity but limited returns; the most flexible are gold futures or CFDs, which allow two-way trading, leverage to amplify gains, and are especially suitable for short-term trading. Small investors might consider CFDs due to lower entry barriers.

From an asset allocation perspective, the basic rule is to invest in stocks during economic growth periods and allocate to gold during recessions. A more prudent approach is to diversify among stocks, bonds, and gold based on risk profiles. When the economy is strong, corporate profits are good, stocks tend to rise, and gold is less favored. During economic downturns, the value-preserving properties of gold become more prominent.

Markets are ever-changing; major events like the Russia-Ukraine war, inflation, and rate hikes can happen at any time. Holding a certain proportion of stocks, bonds, and gold can offset some volatility risks, making investments more stable. This is also why more and more people are starting to take the role of gold in asset allocation seriously.