Profit From The Coming Transfer Of Wealth By Understanding Wealth Cycles

Different asset classes have proved to be more or less favorable during different time periods. History has shown that the bigger returns have been made from being in the right market at the right time. The fluctuations among different assets are called wealth cycles.

Simply put, a wealth cycle is a way for an observant investor to forecast market direction and move money from an overvalued asset in a bubble to an undervalued asset class. Then ride the new asset up until it becomes overvalued, sell, and repeat the process with a different asset.But you must pay close attention to the market and know when to get out. It is also important to watch what’s happening in other sectors and look for the next big opportunity.

Wealth cycles are not new, they have been around since ancient Greece and Rome and they still reoccur regularly in today’s modern world. In fact, recognition of cycles is a way humans recognize patterns and plan for the future.

Wealth cycles and economic cycles are actually quite simple; they start off with economic expansion, often led by an increase in credit, which then leads to a crisis, followed by a recession, and finally preceded by a recovery, which leadsyet again to an expansion. By watching these patterns and keeping tap on the pulse of the economy these cycles can actually be predicted by with some regularity.

You can see these cycles play out in different asset classes such as stocks, real estate, precious metals and commodities. For a while commodities are plentiful and prices are low. During this time real estate and stocks outperform commodities and gold. Then, the cycle reverses, and gold, precious metals and commodities outperform stocks and real estate.

The chart shows the real estate and stock markets performance against gold over the past 80 years. Both marketshave followed each other almost perfectly. At the last bottom in stocks in the early 1980’s you could have bought the Dow Jones index for about one ounce of gold, and you could have picked up a new house for less than 80 ounces of gold. Then twenty years later the Dow Jones was worth 44 ounces of gold and an average house in the US was selling for close to 800 ounces of gold.



We are currently in the middle of a bull market in precious metals and commodities. We can expect this cycle to end when gold trades in par with the Dow Jones and a new house in the US is worth less than 100 ounces of gold. At that point in time, gold has reached its peak in terms of purchasing power relative to stocks and other financial assets, and it will be time to move into another asset class such as stocks and real estate.

However, for now I recommend any prudent investor to load up on physical gold, silver and quality gold stocks, like Newmont Mining (NEM), Goldcorp (GG), Barrick Gold Corporation (ABX), New Gold Inc, (NGD),Yamana Gold Inc (AUY) and Silver Wheaton (SLW) to name a few, and ride this bull market to the end.