Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Busting Back Above $1000 as Stocks Resume 2009 Crash

Commodities / Gold & Silver 2009 Feb 20, 2009 - 06:52 AM GMT

By: Mark_OByrne


Best Financial Markets Analysis ArticleGold has rallied strongly again this morning and is up 1.5% at $990/oz after consolidating around the $975/oz mark yesterday. Stock markets are under severe pressure again this morning after yesterday’s 7 year low close for the Dow Jones.

There is a risk here of a panic sell off in stock markets and the next leg down in the stock bear market looks imminent as the ills of the global financial system virulently infect the global economy. While gold has become overbought in the short term, its medium and long term fundamentals are as sound as ever.

Governments and central banks, in their desperate attempts to avert deflation, are debasing their currencies and risk causing an international monetary crisis where investors and savers flee paper assets and currencies into hard, tangible, finite assets that cannot be printed exponentially.

Much mainstream media coverage of gold remains uninformed and lukewarm to negative despite the appalling financial and economic conditions challenging us. This is a sign that gold remains in the early to middle stages of its bull market. Talk of “gold fever” or a “gold rush” in the gold market is very misguided as only a tiny fraction of retail investors have any allocation to gold whatsoever – let alone being overweight gold.

There are no accurate statistics but I would confidently estimate that less than 2% of retail investors have any allocation to gold whatsoever.

The “man in the street” barely knows what the price of gold is in dollars, let alone in sterling or euros. The majority of retail investors (and indeed financial advisors) know little or nothing about why one should invest in gold, nor indeed how one would invest in gold.

Table Above Shows the Slow but Steady Rise of Gold in Recent Years

Gold is featured in the non specialist financial media once in a blue moon (every few months at best) and when it is covered it is nearly always covered in a negative or at least lukewarm fashion.

Factually incorrect statements such as “most analysts warn that gold could be overvalued and there could be a painful correction on the way” are commonplace. The fact is that the majority of analysts are bullish on gold as can be seen in the Reuters Precious Metals Poll and the Bloomberg Gold Survey (both of which we take part in). Most analysts and experts in the precious metal markets remain positive towards gold due to the unprecedented global financial and economic meltdown we are now suffering.

Many of the analysts who are negative are in fact product sellers, stockbrokers and other vested interests who have always been negative on gold and will likely always be so as they simply do not understand and have not bothered to inform themselves about the market.

We will have a gold bubble and a gold mania in the coming years. There is no fever like gold fever. However, we are a long way from there yet and gold will have to reach its inflation adjusted 1980 high of $2,400/oz in 1980 before it can be classes as overvalued. It is currently less than half the value that it was in 1980.

There cannot be a bubble in an asset class unless it rises to all time inflation adjusted highs and often times asset bubbles result in prices of multiples of their previous record highs.

In January 1980, just before the Federal Reserve avoided an inflationary catastrophe, the gold price peaked at $875. That is $2,430 in today’s dollars. But the pools of speculative capital are much larger now than in 1980. A true gold bubble could well leave this benchmark far behind.

And if the dollar collapses (‘Former Bank of England official expects dollar collapse’ ) as some fear and the US suffers virulent stagflation or hyperinflation then we will rise way above the 1980 inflation adjusted high.

Gold rose by more than 2,400% (from $35 to $850 or up X 24 times) in the 1970’s . Should a similar bubble form now gold would have to rise from a low of $250 in 2000 to over $6,000/oz.

The Nasdaq rose some 1600% from some 300 in 1990 to over 5000 in 2000 ( up X 16 times). Should a similar bubble form now, gold would have to rise from a low of $250 in 2000 to over $4,000/oz.

Even the Dow Jones went from 1900 in late 1987 (after crash) to over 14,000 (up X 7 times). Should a similar bubble form now, gold would have to rise from a low of $250 in 2000 to over $1,750/oz.

To take an even longer term and classic, archetypal example of a bubble, we only need to look to the South Sea Bubble which saw a nearly 10 fold increase in less than a year (a real proper mania) .

Should a similar bubble form now, gold would have to rise from a low of $250 in 2000 to over $2,500/oz (which coincidentally is gold’s inflation adjusted high of 28 years ago).

Gold has no fever, rush or mania yet with little or no retail participation and most of the media covering gold semi annually. More importantly returns have been slow and steady as seen in the performance table above.

Always good to keep a historical perspective especially in these unprecedented and very challenging financial and economic times.

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ph +353 1 6325010
Fax  +353 1 6619664
Gold and Silver Investments Limited
No. 1 Cornhill
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

© 2005-2019 - 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