Historical Gold Bull Markets: A 10% Pullback is Not Uncommon, But How Do Bull Markets End?

This week, gold once fell more than 5%. Bank of America believes that it is normal for gold to correct after a significant rise, and monthly pullbacks of over 10% have also been common in previous bull markets.

According to news from the Trend Trading Desk, on October 28, Bank of America Securities published a research report stating that since 1970, monthly pullbacks of over 10% have not been uncommon in past gold bull markets. After these pullbacks, gold prices often regain upward momentum and continue to rise.

(Historical trends of gold bull markets)

The true end of a gold bull market is not due to technical overbought conditions or short-term fluctuations, but rather a fundamental change in the core driving factors behind it. For example, a shift from stagflation to aggressive interest rate hikes, or a return from unconventional economic policies to traditional ones.

The report emphasizes that the current pullback may provide an opportunity for investors who have not yet fully allocated to gold. As long as the macro factors driving this bull market remain unchanged, the long-term upward trend of gold remains solid.

Pullback over 10%? A "common occurrence" in gold bull markets

Bank of America states that the path of a bull market has never been smooth.

Recently, after gold prices set a series of historical highs, a pullback occurred, and market sentiment became tense. However, when examining this round of market activity in the context of history, it is far from an abnormal phenomenon.

Data in the report shows that reviewing the six major gold bull markets since 1970 (which began in 1970, 1976, 1982, 1985, 2001, and 2018), monthly price declines of over 10% are not uncommon.

(Left: It is not uncommon for gold prices to drop by 10% during a bull market; Right: After adjustments in the gold bull market, a continuous upward trend follows)

For example, in the bull market that began in 1976, there was a maximum monthly decline of nearly 12%.

However, for investors, the more critical information is: none of these sharp pullbacks have truly ended the bull market.

This indicates that, in the absence of changes in macro driving forces, technical pullbacks are often a healthy part of a bull market, a normal process for the market to clean up excessive leverage and consolidate the upward foundation.

Data shows that after these significant pullbacks, gold prices continued to rise, with cumulative increases ranging from 50% to 200%.

Therefore, for long-term investors, such fluctuations should not be a reason for panic selling.

Bank of America stated that in its previous gold price forecasts, the research team had anticipated the possibility of a correction and expects gold prices to rise to $5,000 per ounce next year.

How historical bull markets end: changes in driving factors are key

If the lack of a pullback is not to be feared, then what signals should investors truly be wary of? The report suggests that it is a fundamental shift in the macroeconomic landscape.

The rise in gold prices is not without foundation; every bull market has its unique macro drivers, and the end of a bull market invariably occurs when these core drivers fade or reverse.

The report details the "terminators" of past gold bull markets:

• 1970 Bull Market (driven by the oil crisis): As geopolitical stability increased and inflation concerns eased, the momentum of the bull market weakened.
• 1976 Bull Market (driven by stagflation): Then-Federal Reserve Chairman Volcker implemented aggressive interest rate hikes to combat inflation, and the high-interest rate environment ended gold's appeal.
• 1982 Bull Market (driven by rebound trading): This began with a "rebound trade" following the sharp drop in gold prices after Volcker's rate hikes, compounded by the backdrop of the U.S. recession (1981-1982). However, the end of this bull market was relatively straightforward, as the rebound itself had reached its limit.
• 2001 Bull Market (driven by quantitative easing QE): When the Federal Reserve announced its third round of quantitative easing, the market believed that interest rates had no further room to decline, and the marginal effect of easing expectations diminished, leading to a stall in the bull market.
• 2018 Bull Market (driven by the COVID-19 pandemic): As the global economy reopened in the post-pandemic era, large-scale monetary easing policies gradually withdrew, leading to a decline in safe-haven demand.

Therefore, the report points out that the core driver of the current bull market that began in 2022 stems from "unconventional economic policies," specifically including the high fiscal deficits during the Biden and Trump administrations, the continuously growing debt trajectory, and market concerns about the government's ability to service its debt.

Bank of America emphasizes that as long as the U.S. fails to "return to more orthodox economic policies and traditional conservative fiscal policies," or the Federal Reserve does not "shift back to a hawkish stance," the macro foundations supporting gold prices remain solid.

Analysis indicates that in this context, any short-term price pullback is more likely to be a strategic buying opportunity rather than a signal of a trend reversal