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Gold's Decade Long Secular Uptrend


This chart highlights the major trends of the last decade.  The US dollar in a long term downtrend.  The S&P struggling and failing to even stay flat.  Oil prices in a long term uptrend punctuated by extreme volatility.  Energy is the lifeblood of the global economy, and the steep rise in oil prices from 2003-2008, have much more to do with the cause of the recent recession than the sub-prime / real estate housing crisis.  A point that has been supported by both Nouriel Roubini, and Jeff Rubin, former economist for CIBC, and author of the recent book "Why Your World  is About to Get a Whole Lot Smaller".

The standout trend is Gold, clearly in a long term secular uptrend.  Gold is the most complicated commodity to understand.  Something about it's historical value and allure lend it an almost mythical quality that clouds a rational understanding of it's value and importance.  The fact that most nations have substantial gold reserves, give's it a conspiratorial mystique as well.

What we do know about Gold though is that it is a store of value.  It has been throughout history and continues to be today.  It's value is related to relative demand vs supply, and like all commodities there is room for manipulation by those who have large reserves of it.  Also like most commodities today, it is very difficult to substantially expand supply, due to the costs, risks, and time required to build a major new mine.

I think the most important thing to take away from the above chart is that, as the US dollar continues it's steady decline, acknowledging the fact that the US economic power is also in long term decline, gold has steadily risen in value.  I believe the price of gold can be interpreted as the measure of uncertainty in the value of global currencies as we begin the volatile journey of removing the US dollar from it's stabilizing role as the worlds' reserve currency.  I think it is a safe prediction to say that more uncertainty lies ahead.