o3 BLOG | Investing

What is a Bull Market: Everything You Need to Know

March 30, 2022

O3 Mining

What is a Bull Market: Everything You Need to Know — For younger investors or those just starting out, learning to temper your expectations and grow your money, in the long run, is vital to avoid potential financial losses. And that means knowing the difference between a bear market and a bull market. Often seen as a decline in market conditions, a bear market is a time when assets and securities decline amid fears of divesting and price increases. A bull market, however, is a little bit different. 


A bull market is a period in financial markets when an asset or security price rises continuously. The optimism of a bull market is traditionally characterized by investor confidence, and expectations, or when stock prices increase by 20 percent after two declines of 20 percent each. Traders employ various strategies to profit off bull markets, such as increased buy and hold and retracement. Part of the difficulty is that it can be hard to predict the psychology of investors, and speculation may sometimes play a large role in the markets.


The S&P 500’s longest bull market in history began in March 2009 and ended abruptly in March 2020, clobbered by coronavirus fears. The current bull market started soon after. Through it all, precious metal investors maintained a strong long-term outlook, which is why young investors should consider gold mining stocks, ETFs, and physical gold to diversify their portfolios.  


Conditions of a Bull Market 

While there are no specific characteristics of a bull market, they generally occur when the economy is strengthening or already strong. A strong GDP and a drop in unemployment will often coincide with a rise in corporate profits, and investor confidence will climb. For instance, as we wade out of the COVID-19 pandemic, companies will begin to ramp up the production of goods and commodities, meaning the overall demand for stocks will be positive. 


With opportunity aplenty, there will be a general increase in IPO activity during bull markets. When supply is weak, and demand is strong, investors become eager to buy securities, while few will sell. 


Bull, or bear, markets are all a part of an economic cycle with four phases: expansion, peak, contraction, and trough. The beginning of a bull market is a leading determinator of economic growth. It establishes a groundswell of support for future economic conditions and measures that drive stock prices and lead to profits. 


Being a Bullish Trader in a Gold Bull Market 

Remember that fundamentals determine trends for investors looking to ride the wave — a keynote message to remember moving forward. Investors who want to benefit from a bull market should buy early to take advantage of rising prices and sell them when they’ve reached their peak. But for investors looking to diversify their portfolios, investing in gold mining stocks is a good way to do it. 


Because of their operating leverage, gold mining stocks have historically had the potential to outperform as gold prices rise. Higher gold prices, especially when political and economic crises are at hand, can increase gold miners’ profit margins and free cash flow. What’s more, when the price of gold rises in a bull market, the profits of a mining company could increase — as production costs rise a little slower, any increase in the price of gold can go straight to the bottom line. Gold mining companies actively increase dividends in bull markets, which allow shareholders to reinvest and accelerate growth potential. 


Why Investing in Gold Stocks in a Bullish Market is a Good Idea

Bull markets don’t last forever, so it’s important to invest in companies that use such time to strengthen their balance sheets, reward shareholders, and reinvest into projects which will provide future value and returns. Dividend-paying stocks traditionally increase dividends to reward shareholders, and gold mining stocks continue to yield impressive results. Many of the top 10 gold mining companies have seen their earnings per share estimates almost triple in the past two years, while the top 20 S&P 500 companies have seen around a -15 percent decline in their earnings per share estimates. Gold has yet again outperformed just about every other asset class in 2020, and gold miners offer even greater returns for those willing to manage the additional risk they present. 


ETFs are also typically a good way to profit in a bull market; short selling and retracement additions can also be used. If you’re looking to be more aggressive with your investment, you can identify a specific stock early in the trend and sell it when it has reached its peak growth. This is called the “buy low, sell high” strategy. However, if there is a promising junior gold mining stock that has caught your attention, you might want to consider holding onto it for the long-haul, as they can provide massive long term rewards.


Bottom Line 

Ultimately, the best investment strategy is a long-term one. Investing in gold mining stocks can help you capitalize on this bull market period, which is likely to continue post-pandemic. 







To learn how O3 Mining can add long-term value to your portfolio, contact us today.

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