Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Warning For Gold From Inflation, U.S. Dollar, And Mining Stocks!

Commodities / Gold and Silver 2012 Dec 15, 2012 - 11:01 AM GMT

By: Sy_Harding

Commodities Historically gold has been seen as a safe haven in times of rising inflation. No surprise then that it’s been in a long and impressive bull market since 2002, when a string of significant events began that were expected to create a substantial surge in inflation.

The 2001 recession resulted in significant monetary easing by the Fed in an effort to re-stimulate the economy. The 9/11/01 terrorist attacks resulted in dramatic increases in government spending on Homeland Security and the subsequent invasions of Afghanistan and Iraq.


Those were enough to get gold going in anticipation of expected spiraling inflation. The price of gold doubled from $250 an ounce in 2002 to $500 by 2005.

The inflationary expectations continued when previous federal budget surpluses turned to growing deficits as the wars were ramped up while revenues from taxes fell as the economy continued to struggle. Inflation had still not shown up to any degree but it seemed sure to do so at any time. So gold continued to attract unusual buying. By 2008 its price had doubled again to $1,000 an ounce.

At that point the 2008 financial crisis hit. Government deficit spending increased again as massive stimulus efforts were undertaken to prevent the subsequent recession from worsening into the next Great Depression.

And gold almost doubled again, reaching $1,900 an ounce last year.

But still the soaring inflation expected for a dozen years has not arrived, at least in the U.S.

During the decade of the 1990’s, inflation as measured by the Consumer Price Index averaged 2.8% annually. In the dozen years since 2001 it has averaged 2.5% annually. Over the past year is has averaged only 1.8%.

The last time gold enjoyed a huge bull market was in the 1970’s when inflation was truly spiraling higher in a struggling economy. Gold surged to a then record ‘bubble’ peak of $850 in 1979. But inflation averaged 7.7% annually in the 1970’s decade, and reached a high of 13.6% in 1981.

Gold is also considered a hedge against declines in the value of currencies, particularly the U.S. dollar.

So the dollar’s plunge beginning in 2002 was also supportive of gold’s long bull market. The U.S. dollar peaked in 2002 at 120. By 2008 it had plunged to 71.



Meanwhile, unlike other commodities, gold is not consumed. It is not eaten or burned as fuel. All the gold that has ever been mined remains in existence. It is sought after and saved when its price is rising in anticipation of rising inflation, or on concerns created by the collapse of currencies.

And in the final stage of long bull markets in any asset, prices often continue to rise further for no other reason than that they have been rising so dramatically for so long, making investors confident they can extend expectations for more gains in a straight line into the future, rather than thinking cycles.

Given that it’s been 12 years and the expected inflation has not shown up, and indications that the dollar’s multi-year plunge may have bottomed in 2008, gold may well be in that final stage where its fundamental supports are no longer there and its price is being maintained by speculative investors.

Another warning may be coming from the gold-mining stocks. Gold bullion is only down $200 an ounce, 10%, since its peak at $1,900 an ounce last year. However, gold-mining stocks, which often lead the bullion in both directions, began their long bull market in 2001, a year before the bull market in bullion began, and potentially topped out in March of last year, having plunged 29% since.

At Street Smart Report our technical indicators have been on a sell signal on gold since October, with a downside target of $1,670 an ounce, the level of its important 30-week moving average. If it finds support there we could get another buy signal for another rally.

But if that support does not hold, it could be ominous for gold, given that two main reasons for its long bull market (the threat of inflation, and the plunging dollar) may no longer be there, leaving its main support over the last year or so as mostly speculative fever, and even it may be waning given the $200 an ounce decline from its peak at $1,900.

Something to think about before jumping more aggressively into gold on the belief that this dip too is just another buying opportunity.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife