Now -That – Was a Gold Bubble

[Camtender]

Now -That – Was a Gold Bubble


On October 20, 2010, in Commodities, by Tim
.
Amid the increasing talk of a “gold bubble” these days (and with many investors not likely caring too much that the “bubble” they now see isn’t all that impressive as compared to the “bubbles” they saw two years ago, four years ago, and six years ago as noted in this item earlier in the week), putting a real gold bubble from 1979-1980 up on the same chart with the more recent moves seemed like an interesting exercise. The result is shown below.

Depending upon where you start the 1979-1980 move, it could be made to look even bigger. It is shown above, somewhat arbitrarily, beginning in May of 1979 at about $250 an ounce, though, one could argue that starting in the low $200 range earlier in the year or below $200 an ounce in 1978 would be more appropriate.
For convenience, the chart above is also shown below without the green curve where the blue, red, and black lines look much more menacing with a 75 percent reduction in scale.
Clearly, the 2005-2006 move along with the surges in both 2007-2008 and 2009-2010 look quite different in the two charts and, when you think about it, you have to wonder: a) what the recent fuss is all about, and b) how much higher the gold price might go someday.

It looks like the dollar strength we saw yesterday is quickly fading as more and more Federal Reserve officials talk about the urgent need to print more and more money. Don’t be surprised if, at some point, we again see something like the 1979-1980 surge – that would be an excellent time to cash in and think about doing something different.

[BK]

Re: Now -That – Was a Gold Bubble

I had an interesting conversation with an old friend about precious metals as an investment option. My friend is married to a Medical Doctor and bought their house long before the Housing Bubble took off. They have disposable income and they are savers - they save in into traditional Mutual Funds
When I asked had he and his wife ever considered Gold or Silver - NEVER - and he's never read a single article recommending Precious Metals - the thought has never crossed their mind. We are a long way from a Bubble.

More interesting my friend works in a Business that uses lots of metals and has our conversation progress my friend talked about the costs of the metal inputs going through the roof. So, my friend is seeing the inflation of metal prices every day - but it has not altered his investing style.

[ThePythonicCow]

Re: Now -That – Was a Gold Bubble

the thought [of investing in Gold or Silver] has never crossed their mind. We are a long way from a Bubble.

Well, yes, we're a long way from a Bubble involving your friend or those who invest similarly.

A bubble occurs with a rapid influx of new investors, and a bubble bursts when that influx dries up and reverses, with no pool of greater investors fools stepping forward to keep the bubble expanding.

We could still have a bubble, including a rapid run-up in prices, and a subsequent bursting and collapse of prices ... just with other classes of investors.

[Raz]

Re: Now -That – Was a Gold Bubble

Don't know how I missed this post of your, Cam, but thanks for doing it!

I'm bookmarking Iacono's website.

[nero3]

Re: Now -That – Was a Gold Bubble

I'm thinking gold is looking more stable this time, like Dow Jones before 2000, if it have not already, maybe it will just roll over.

[Camtender]

Re: Now -That – Was a Gold Bubble

Really, the comparison of the bullion from 70's to early 80's is nothing compared to rise in the equities, should be a fun ride ahead.

[nero3]

Re: Now -That – Was a Gold Bubble

Really, the comparison of the bullion from 70's to early 80's is nothing compared to rise in the equities, should be a fun ride ahead.

Gold went from around 20 to 35 dollar in what? 58 years? What's also interesting is to compare the rise in the Dow since the fed was created, with the rise in gold, I'd say gold is up less, but there should had been some growth in the period, after inflation, when that's included, i don't think it's so obvious what's more expensive. Also compare the CRB index with the DOW. The growth aspect is something that is forgotten with these dow/ gold measurements.

[nero3]

Re: Now -That – Was a Gold Bubble

One of the things I really don't like about gold is that it's touted by paranoid lunatics such as Alex Jones, and in general many people I don't want to associate with.

[metalman]

Re: Now -That – Was a Gold Bubble

One of the things I really don't like about gold is that it's touted by paranoid lunatics such as Alex Jones, and in general many people I don't want to associate with.

finally. something we both agree on. this explains your error...

if promoted by lunatics = bad investment

if derided by msm = bad investment

if not promoted by msm (eg stocks) = bad investment

where does this fit into your mindset?

Gold over $1400 and still no gold bubble

A friend sent me a note to ask what I think of Mark T. Williams' recent article “Fool’s Gold” in Foreign Policy magazine about World Bank President Robert Zoellick's international gold standard proposal. The article makes an ideal launching point for our 2011 assets forecast.

Over the past 40 years I have learned to place gold market analysts into three main categories. Two of them are portfolio hazards.

The goldbug gold market analysts occupy the first hazardous analyst category. They perennially argue in defense of higher gold prices. They did so even during the 1980 to 2001 bear market in gold when gold prices fell from a peak of $850 to a low of $265. To them, now is always the right time to own gold. They ignore the fact that gold performs well when real interest rates are negative and poorly when they are positive, well when currency risk is rising and poorly when it’s falling. They imbue gold with magical properties. They like gold. Gold represents a solid, tangible anchor of certainty and constancy in a period of turbulence and rapid change.

There are several sub-categories of goldbug. The religious goldbug. The ideological goldbug. The monetary fundamentalist goldbug. But they all have one thing in common. They all believe that special properties of the metal itself are the main reason for gold’s special role as money and currency in history.

The historical fact is that governments made gold money, first for the uniform collection of taxes within the sovereign’s realm and later to guard against the misbehavior of governments in the conduct of trade. It is this latter role for gold that never really ended in 1973, as we noted in 2001 when we took our gold position, despite the official elimination of gold’s role in the monetary system. Modernity has not eradicated the tendency of governments to be even less honest with each other than they are with their own citizens.

The second category of detrimental gold analysts are the perennial gold detractors, the gold bashers. They exist as a counterpoint to the goldbugs. They dislike gold for what it represents. To them, gold is an affront to technocratic monetary management based on the promising idea that monetary policy makers know what to do to maintain stable currency values and can be trusted to do it, no matter the political consequences and regardless of the wide range of political decisions made by politicians outside the control of the monetary technocrats that effect currency values, in particular unmanageable fiscal deficits, the number one killer of currency exchange rate value.

The third category of gold analysts, the gold realists, are not detrimental to your portfolio but they are not much fun to read. They never tell you what you want to hear. They don’t glorify gold to the satisfaction of goldbugs nor do they vilify it to sooth the egos of those investors who were too timid or easily swayed by gold vilification arguments to buy gold insurance against a broken monetary system when it was still cheap.

The gold realists are cold hearted, unsentimental analysts who continuously re-assess their position in the gold market. I count myself among them.

We don’t buy into the goldbugs’ magical thinking. Human nature being what it is, gold is like everything else that can be bought and sold, good in the hands of good men and bad in the hands of the pernicious, just like fiat money.

We gold realists don’t buy the monetary technocrat’s argument, either. We know that even if the monetary technocrats are competent and honest, politicians can undo them vote after vote. Without the discipline of the international gold standard to keep politicians for making politically convenient yet fiscally unsound short-term spending decisions, each administration simply pushes the ever-larger barrel of contingent liabilities on to the next administration with a nudge and a wink. The liabilities pile up decade after decade.

Career economists vie for employment within the academic, government, and banking institutions that comprise the monetary technocracy that created this mess. They invent creative explanations: supply-side economics, the Asian savings glut, Bretton Woods II, and -- my personal favorite -- economic dark matter, to explain the inexplicable.

I have a simpler explanation for America’s imbalances dilemma. The US Treasury reserve based monetary system was, as economist Robert Triffin predicted in the 1960s destined to run into trouble. It did in the late 1990s, but no American president has had enough credibility to level with the American people and explain the simple fact that we need to take a haircut in order to adopt a new, more sustainable system; we must reduce our liabilities and our dependency on foreign capital inflows to finance our trade and fiscal deficits. But the American social contract of prosperity in exchange for citizenship was shredded by war and asset bubbles and replaced by entertainment and government subsides. There is no one to deliver the message and very few people to deliver it to.

For me, the time to start owning gold is when the country that is supposed to be the bedrock of a debt-based global monetary system goes off the rails as the US did in 2001. The blunder of a stock market bubble based on lies from US accounting firms about the accounts of technology companies was followed in quick succession by a “preemptive war” predicated on lies from the about imminent security threats and a securitized debt financed housing bubble based on lies by US credit ratings agencies about debt securities ratings.

The accumulating cost of bailing the economy out of each policy error ratcheted up the US budget deficit from 4% to 10% of GDP. None of it would have been possible under the international gold standard that the US abandoned in the early 1970s. Global bond markets would have delivered punishing bond yields that drove the dollar up and forced the US to get its house in order.

[nero3]

Re: Now -That – Was a Gold Bubble

I think Gold is on a path where it must keep the parabolic trend or die. Just like in 1979-1980. The moment the parabolic trend is broken it's all over. Due to the price now being around 1350, and twice that is a reasonable top, eighter it must die now, or double in a pace where the price roughly doubles in a 6 month time horizon. It stalled for a while in 1979 (around 400 dollars), before doubling (just like it have stalled now). I just don't see it now, because who is going to buy? The inflation is in emerging market's and they obviously rather hoard soft commodities (see the moves in coffee, cotton and corn) , than gold like rich people of the west did in 1979-1980. The paper market's can't move the price alone, there needs to be some real demand underpinning the bullish story.

Notice that corn adjusted for inflation is at half the price in 1980, however when adjusted with the doubling in bushels per acre efficiency since 1980, it seems the price now is rather high. Actually food is ridiculously cheap relative to wages in the west, but in relation to inflation, considering the doubling in output per acre, it's actually quite expensive relative to 1980.

[metalman]

Re: Now -That – Was a Gold Bubble

I think Gold is on a path where it must keep the parabolic trend or die. Just like in 1979-1980. The moment the parabolic trend is broken it's all over. Due to the price now being around 1350, and twice that is a reasonable top, eighter it must die now, or double in a pace where the price roughly doubles in a 6 month time horizon. It stalled for a while in 1979 (around 400 dollars), before doubling (just like it have stalled now). I just don't see it now, because who is going to buy? The inflation is in emerging market's and they obviously rather hoard soft commodities (see the moves in coffee, cotton and corn) , than gold like rich people of the west did in 1979-1980. The paper market's can't move the price alone, there needs to be some real demand underpinning the bullish story.

Notice that corn adjusted for inflation is at half the price in 1980, however when adjusted with the doubling in bushels per acre efficiency since 1980, it seems the price now is rather high. Actually food is ridiculously cheap relative to wages in the west, but in relation to inflation, considering the doubling in output per acre, it's actually quite expensive relative to 1980.

as usual... didn't answer the question...

'i think' this & 'i think' that...

you don't have to start every sentence with 'i think'... unnecessary... redundant...

no one else is thinking the ideas you are writing... too easily dismissed by means of the data.

[nero3]

Re: Now -That – Was a Gold Bubble

You are asking if something provided by lunatics on definition is a bad investment. The trouble with people like Alex Jones is that they have the perception of a dog sniffing in trash containers. Its not a very sophisticated form of perception. I'd say it's a higher function that enables the great business man to see great opportunities (where someone like Jones would see endless misery). I think it's the same form of perception, two sides of the same coin, just that one is more developed and sophisticated than the other. I think a good investment is something that appeal to positive, as that goes to the more sophisticated, creative and advanced perception. Another thing is that the negative often is visible, here and now (if the present is bad), while the positive is invisible, and extends into the future, thus making it harder to comprehend (of course the opposite applies to a situation like 1999).

[Camtender]

Re: Now -That – Was a Gold Bubble

Gold went from around 20 to 35 dollar in what? 58 years? What's also interesting is to compare the rise in the Dow since the fed was created, with the rise in gold, I'd say gold is up less, but there should had been some growth in the period, after inflation, when that's included, i don't think it's so obvious what's more expensive. Also compare the CRB index with the DOW. The growth aspect is something that is forgotten with these dow/ gold measurements.

MacGruber, are you talking about the period when holding more than five ounces of gold as a US citizen was a felony (1933 to 1974)? Or from the Gold Stanard Act of 1900?

Do you think there might be a difference in the investment value of gold now in a fiat environment vs. a gold standard environment?

Gold Prices 1979 to 1950
1979	$459.00		1969	$41.00		1959	$45.25
1978	$208.10		1968	$43.50		1958	$35.25
1977	$161.10		1967	$35.50		1957	$35.25
1976	$133.77		1966	$35.40		1956	$35.20
1975	$139.29		1965	$35.50		1955	$35.15
1974	$183.77		1964	$35.35		1954	$35.25
1973	$106.48		1963	$35.25		1953	$35.50
1972	$63.84		1962	$35.35		1952	$38.70
1971	$44.60		1961	$35.50		1951	$40.00
1970	$38.90		1960	$36.50		1950	$40.25

Gold Prices 1949 to 1920
1949	$40.50		1939	$35.00		1929	$20.67
1948	$42.00		1938	$35.00		1928	$20.67
1947	$43.00		1937	$35.00		1927	$20.67
1946	$38.25		1936	$35.00		1926	$20.67
1945	$37.25		1935	$35.00		1925	$20.67
1944	$36.25		1934	$35.00		1924	$20.67
1943	$36.50		1933	$32.32		1923	$20.67
1942	$35.50		1932	$20.67		1922	$20.67
1941	$35.50		1931	$20.67		1921	$20.67
1940	$34.50		1930	$20.67		1920	$20.67

Gold Prices 1919 to 1890
1919	$20.67		1909	$20.67		1899	$20.67
1918	$20.67		1908	$20.67		1898	$20.67
1917	$20.67		1907	$20.67		1897	$20.67
1916	$20.67		1906	$20.67		1896	$20.67
1915	$20.67		1905	$20.67		1895	$20.67
1914	$20.67		1904	$20.67		1894	$20.67
1913	$20.67		1903	$20.67		1893	$20.67
1912	$20.67		1902	$20.67		1892	$20.67
1911	$20.67		1901	$20.67		1891	$20.67
1910	$20.67		1900	$20.67		1890	$20.67

[dcarrigg]

Re: Now -That – Was a Gold Bubble

as usual... didn't answer the question...

'i think' this & 'i think' that...

you don't have to start every sentence with 'i think'... unnecessary... redundant...

no one else is thinking the ideas you are writing... too easily dismissed by means of the data.

Yet he responds:

... I think it's the same form of perception... I think a good investment is something that appeal to positive, ..., .... Another thing is that the negative often is visible, ... (...), ..., ... (...).

Identify a subject. Put forth a verb. Add objects if necessary. Limit prepositional phrases. End sentences.