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Gold Is At All Time Highs In Real Terms Despite Friday's Selloff

Mar. 02, 2020 5:13 PM ETGLD, GSG, IAU, PHYS, SGOL, GDX, PHYS:CA10 Comments


When we think of the great gold bull market of the past nearly 20 years, we almost always think of it in terms of the US dollar. Myself included, and I am no fan of the US dollar at all. True gold bugs know the key pivot dates very well. Most of us even know the prices of the tops and bottoms. 2001 to 2011, $250 to $1,923. Then a four year bear market until the December 2015 bottom at $1,045, and now four years later we're back at $1,630 or so.

We all know the chart. It's been burned into our minds, some of us for 20 years already. We remember the relentless slog higher for 10 years, the scary but short pullback in 2008, the stomach-wrenching fall in 2013, the weary trip down to a bottom in 2015 followed by a six-month slingshot back up. Then the boring 3-year sideways churn, and finally the breakthrough last summer.

Gold Bull Market

Now allow me to blow your mind just a bit and insist that this chart is all wrong from a true hard money perspective. If we insist that the dollar is just paper with no intrinsic value, then we should stick to our word and we should not be measuring gold in dollar terms, at least not primarily. While that measure is useful for trading and measuring your dollar gains/losses/savings, and admittedly it does telegraph an important signal about relative faith in fiat currencies and the dollar reserve standard, the dollar price of gold should not be the primary measure for gold, and certainly not the exclusive one. Nor should the measure in any paper currency.

If gold is indeed money itself and financial assets are actually inflated and distorted in fiat paper terms, then gold should really be measured primarily against

This article was written by

Austrolib profile picture

I invest in the light of Austrian Business Cycle Theory and cover monetary trends for the purpose of timing the credit cycle. My marketplace service The End Game Investor helps subscribers manage the risks of, and profit from the ongoing fiscal and monetary crisis precipitated by the COVID-19 pandemic. I use gold, silver, and associated stocks and investment vehicles in a low-risk high-return setup.

Analyst’s Disclosure: I am/we are long GLD, GDX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (10)

Kosol8man profile picture
Hello Austrolib , you are now my platinum expert (He nailed a 10% up move in platinum to a day this summer). So now i ask does these commodities of real value include platinum. ??
its at a buying point now after a %17 selloff in 5 days
Austrolib profile picture
I am not a platinum expert by any means. That was purely a coincidence. I would say that platinum is a safer bet than palladium at this point with much less risk. If we start to see currencies really decline then platinum should rise. How fast I do not know, but it's worth an allocation, which is why I own some.
doug5380 profile picture
If I could chime in with two thoughts on Pt. First So. Africa's electric supply remains on the knife's edge with outages currently minor but able to go full on stupid in a moment. Second Germany, (who oddly whacked Pt with it's Dieselgate/VW mess) is apparently looking to go full into Hydrogen. Hydrogen's best current production method uses Pt as a catalyst.
By the way, on the article, the lead in was brilliant! Yup we know that chart by heart!
I was concerned as others have commented regarding the make up of the GSCI but I do think you are on to something fundamental. At a minimum swap physical Au for Ag and buy the miners.
Personally I consider gold at the top of the food chain (the golden rule) and an absolute gage against monetary inflation; I like to gage gold against macroeconomic factors like trade and budget deficits, debt, and wasteful expensive wars; to gage it against microeconomic factors trivializes gold and becomes subjective
Thank you for article
Downtown10 profile picture
Very interesting way to look at the value of gold. Gives one a new viewpoint from which to consider gold, which is always good. The problem with using the S&P GSCI Commodity Index, however, is that it’s almost 80% oil and gas. Makes the other 20% (livestock, precious metals, industrial metals and agriculture) mostly irrelevant. I’m not sure how valuable it is to know the value of gold vs. oil & gas.

If gold is indeed money, or at least a store of value, then it seems it should be valued against a basket of other currencies, maybe including bitcoin. Or maybe even against another store of value, real estate.
I believe the RICI (Rogers International Commodities Index) is better; it has only 45% energy (Crude oil, heating oil, unleaded gas and natural gas) and then gold, silver, lead, zinc,copper, and aluminum; I think it is a more realistic commodity index
Reliable Risk profile picture
Hm, interesting point for long term moves in interesting times other than holding because everything will cost more dollars bc cuts. I am concerned about the baked in 50 cut could be a sell the news as the fed won't cut more without implying things are that bad not will they say to expect more soon. The usual we are doing our job and will stick to the same data to dictate may spook the spooked speculators out of havenss for the short term...
seems like we can find a chart somewhere to support our bullish or bearish thesis...??
Relative to the inflation rate shouldn't gold be at about $2,700 to be at all time highs?
Austrolib profile picture
The 1980 high corresponds actually to about $14,300 if we're talking about total Federal Reserve liabilities in relation to how much gold the Fed has in Fort Knox.
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