Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18
Stock Market - This Time is Different. Really?! - 13th Feb 18
Gold and Silver Long-term Buy, Short-term Sell Signal - 13th Feb 18
SPX Futures Are Sliding... - 13th Feb 18
Stock Market Topping Process Begins. The Bubble Finds its Pin - 13th Feb 18
Math Behind the Stock Market Crash and What’s Next – PART2 - 13th Feb 18
Gold Stocks Groundhog Week - 13th Feb 18
Platinum Looks Poised for Surprising Gains This Year - 12th Feb 18
Friday's S&P 500 Stock Market Bounce To Continue, But Selling May Resume - 12th Feb 18
The Inflation Trade and Bond Yields Rising Result in Equities Correction - 12th Feb 18
February 2018 Stock Market Crisis – What Next? - 12th Feb 18
How To Profit From The Bitcoin Bloodbath - 12th Feb 18
The Philippine Economic Dream Could Be Within the Reach  - 12th Feb 18
Is the Stock Market Correction Over? - 12th Feb 18
What Does the Stock Market Decline Mean for Gold - 12th Feb 18
Addicted to SMIGGLE Mega Review, Pencil Cases, Stationary, Back Packs, Drinking Bottles, Toys... - 12th Feb 18
Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - 11th Feb 18
The Fed’s Impossible Choice, In Three Charts - 11th Feb 18
US Stock Market, Gold, Silver and the Macro Backdrop - 11th Feb 18
After Two weeks of Stock Market Decline, People Are Ssking, “Are We There Yet?” - 11th Feb 18
How to Grow Tomatoes From Seeds, Homegrown Organic Money Saving Gardening - 11th Feb 18
Youtube KILLS ALL Small Channels with New DeMonetization Rules - 11th Feb 18
Lot of Stock Market Damage to Be Caused before New the Fed Chief Will React - 10th Feb 18
Best Ways to Make Money - 10th Feb 18
Stock Market Selling Unleashed! - 10th Feb 18
How to Get Free Youtube Subscribers to Get to 1000, YTpals, Subpals, SubmeNow, Do they Work? - 10th Feb 18
Stock Market Buy or Sell? This Insight May Help You Decide - 9th Feb 18
Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - 9th Feb 18
What Is Stock Market Volatility Telling Us Now? - 9th Feb 18
Crude Oil $100 Price in 2019? - 9th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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

© 2005-2018 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

6 Critical Money Making Rules