Gold Should More than Double in Next 6 Months 19 comments
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Nothing protects against inflation like gold.
Gold was, is, and always will be THE ultimate storehouse of value. Mankind was prizing this stuff during the prehistoric period, long before the concept of stocks, mutual funds, or paper money even existed.
Now, I know what you’re thinking, “gold has already risen from $250 to $900 an ounce, how much higher can it go?”
Much, MUCH higher.
No investment ever goes straight up or straight down. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50% (see the chart below).
As you can see, from mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, it even fell to $700, a 30% retraction.
Granted, it wasn’t a full 50% retraction like the one that occurred from 1974-76. But we are experiencing a financial crisis. And gold is the most common catastrophe insurance.
If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold’s recent peak was $1,014 in March ’08 (roughly 14 months before the writing of this report). If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold’s bull market in the ‘70s).
However, judging from the Fed’s money printing, the next leg up may come even earlier.
Now, a lot of commentators have noted that gold is already trading above its 1980 high ($850 an ounce). What they fail to note is that thanks to inflation, $1 in the ‘70s is worth a LOT MORE than a $1 today.
For gold to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it’d have to hit $4,666 per ounce.
Bottom line: gold is nowhere near a peak adjusted for inflation. And if history is any guide, we should begin another MAJOR bull rally for gold sometime in the late summer/ early autumn of this year.
You should consider taking advantage of this to load up now.
Disclosure: I own gold and the gold ETF (GLD)
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This article has 19 comments:
This is not serious at all. Gold is protection against small movements in inflation. Today, an ounze's 1000 or so $ can buy you a lot of things in the nearest WalMart -and cloth and food and some furniture. If we had a collapse of the magnitude it has been feared, that ounze will buy you a few loaves of bread. That would have to be a big collapse, but you get the idea.
If the economy on the contrary, resumes growing, then where is a case for gold? salary-driven inflation? supply driven? Capacity utilization is 70ish % and a pool of unemployed are waiting to work for less if necessary.
Maybe SA should impose a cap on this rambling or something.
Being a true gold bug even I would have to say " a bit strong don't ya think."
NO ONE would have a bigger smile than me if it did, and I believe you have the direction correct. However, with the present govt manipulation via the plunge protection team et al. of the markets this type of prediction (6 months) is a bit strong IMHO.
On May 20 08:31 AM William Taylor wrote:
> I don't own gold and never will. It pays no dividend and it's value
> is essentially psychological. It reacts mostly to the whim of the
> buyers and sellers.
I bought my house 14 years ago for USD 110.000 and sold it a month ago for USD 400.000 (if I sold it day before lehman I would have made USD 600.000 for it).
Yes gold doesn't bring dividends, but you can sell as much of it as you want or use it as a collateral to get any credit you want to use..
So what I did I bought gold at 750 USD and today it is 930 USD an ounce. Guess what... come September I will by 2 houses with the money I doubled. Because not only gold will go up, also house prices will keep coming down due to credit crisis...(I won't have credit crisis because I have gold collateral)
When I bought this house I sold my Coca Cola options given to me by my employer...
So yes it is a risk, but life itself is full of risks...
Some don't go out not to catch cold..some climb steep mountains in winter.. If you can't take the pressure stay at home and get your dividends..or even more secure buy US bonds of 10-20 years at 3 percent annual...By the way my country pays %12 annual for USD bonds it issued in 1995 and still paying on time every 6 months...even that is not hot enough fun for a Turk...
What happens to the price of gold if it becomes apparent that the fears of runaway inflation abate? If one had purchased gold in the early 80's when the price was over 800/oz, the wait was over 25 years to come out ahead. I'm not implying the $1014 high will last 25 years. Shoot, it may not last another month. So, to me, gold remains just a hedge and not as good a hedge as oil. Just sayin.
Stan T.
Platinum went from $190 in 1978 to $1050 in 1980. Palladium went from $50 to $350 in the same period. Sugar from $0.06 to $0.43.
Gold has already made a big move while others haven't. I personally believe there are bigger expected returns elsewhere.
You don't need to buy futures to benefit from this either. Buying long dated call options out of the money would pay off handsomely in the scenario you're talking about.
On May 20 10:47 AM Stan T wrote:
> Owning gold is a hedge against the potential disaster of runaway
> inflation, more probable now with the massive increase in Federal
> debt. However, as a percentage of GDP the debt following the end
> of WWII is still much higher than it is now or forecast to be. The
> huge debt at the end of WWII was brought under control through taxes
> and an expanding economy, so while the risk today has certainly increased,
> it is by no means a certainty that runaway inflation will occur.
>
>
> What happens to the price of gold if it becomes apparent that the
> fears of runaway inflation abate? If one had purchased gold in the
> early 80's when the price was over 800/oz, the wait was over 25
> years to come out ahead. I'm not implying the $1014 high will last
> 25 years. Shoot, it may not last another month. So, to me, gold
> remains just a hedge and not as good a hedge as oil. Just sayin.
>
>
> Stan T.
On May 20 08:31 AM William Taylor wrote:
> I don't own gold and never will. It pays no dividend and it's value
> is essentially psychological. It reacts mostly to the whim of the
> buyers and sellers.
On May 20 09:54 AM cihat wrote:
> Gold is like a house if you sell and make a profit you lose the house
> but you can probably buy 2 houses with that money as long as you
> are not in love with your house.
>
> I bought my house 14 years ago for USD 110.000 and sold it a month
> ago for USD 400.000 (if I sold it day before lehman I would have
> made USD 600.000 for it).
>
> Yes gold doesn't bring dividends, but you can sell as much of it
> as you want or use it as a collateral to get any credit you want
> to use..
>
> So what I did I bought gold at 750 USD and today it is 930 USD an
> ounce. Guess what... come September I will by 2 houses with the money
> I doubled. Because not only gold will go up, also house prices will
> keep coming down due to credit crisis...(I won't have credit crisis
> because I have gold collateral)
>
> When I bought this house I sold my Coca Cola options given to me
> by my employer...
>
> So yes it is a risk, but life itself is full of risks...
>
> Some don't go out not to catch cold..some climb steep mountains in
> winter.. If you can't take the pressure stay at home and get your
> dividends..or even more secure buy US bonds of 10-20 years at 3 percent
> annual...By the way my country pays %12 annual for USD bonds it issued
> in 1995 and still paying on time every 6 months...even that is not
> hot enough fun for a Turk...
>
>
>
>
GGN is an interesting choice - not bullion - but a nice selection of resource-producing companies. Not just Gold miners, but Oil producers and service company also as well as other materials. They are down hugely over the last year - but that is typical of what they are investing in - not a fault of management. They have been raising the dividend (11.1% right now) for 3 years now and only have a total fee of 1.45 percent annually. I would not use them to REPLACE bullion but they are a nice way to invest in the sector as an addition to your portfolio. Thanks for the idea.
On May 20 02:14 PM richandmer wrote:
> Here is a way to own a piece of the gold market and make a dividend
> on top of it. Try GGN - it is a CEF with current div of around 11%