Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Breakout Above $1,000 Only a Question of Time

Commodities / Gold & Silver 2009 Jun 30, 2009 - 05:11 PM GMT

By: Adam_Brochert

Commodities

Best Financial Markets Analysis ArticleTo borrow a phrase from a recent piece by Martin Armstrong, “it’s just time” for Gold to shine and revert to its role as money. Of course, the powers that be and their minions laugh in contempt at such a concept. Wall Street laughs at the investment that has no growth potential and pays no dividends.


And yet, these are the people who didn’t see this economic crisis coming and now declare that it is over! It may be over for them, since they have lined their pockets with taxpayer funds to mitigate their losses, but for the rest of us, the pain is just beginning. Economic depressions are a process, not a one-time event.

Japan has been in an economic depression for 19 years now, yet you won’t see pictures of soup lines on Japanese television. Their government has a printing press, a fiat currency and has ramped up government debt to levels relative to their GDP that make The United States look like a model of government restraint. Yet, debt deflation still reigns and the Nikkei Japanese stock market index remains 75% below its 1990 peak 19 years later.

Will we repeat this two decade depression (which is not over for Japan by a long shot)? Of course. The only wild card is our currency. History tells us that the U.S. Dollar will hold up well during a deflationary depression and is a good place to put one’s money if one does not wish to trade the bear market. But the reserve currency status of the US Dollar is at risk and the calls for a replacement grow louder every day. If a geopolitical event dethrones the US Dollar, an immediate and significant devaluation of the Dollar will occur.

So, why is it Gold’s time? Many reasons, but here are the main points to consider:

• Gold is an international currency and store of value, not a commodity. Cash is king during deflation and Gold has been chosen as the best form of cash by civilizations over the past several thousand years. Apparatchiks cannot decree otherwise with any lasting success.

• Growth for stocks in aggregate is negative, dividends are being slashed rapidly, and dilution via new equity offerings is coming at a rapid clip. This wipes out the reason for taking a risk with equities right now.

• Gold provides a hedge against a rapid currency devaluation, which many governments around the world are trying to achieve. A holder of fiat cash or government bonds is not automatically hedged against this risk. Gold cannot be successfully debased by bureaucratic decree.

• Other asset classes besides cash will do poorly over the next decade and will likely produce negative returns, while Gold will hold its value. Everyone and their grandmother, with the exception of underwater bankers and real estate industry employees, knows real estate is poor investment and the bottom won’t be in for at least 2 more years (the wildly bullish scenario). Stocks and corporate bonds are dead for the next decade, trading opportunities aside. Commodities will be crushed by the deflationary scenario that has started if it continues as anticipated.

• Trust is evaporating and fear and pessimism are the new long-term sentiment. People underestimate the importance of this concept. Gloom and doom are gaining a head of steam. The future is not looking good for at least 70-80% of people in the U.S., Europe, and Japan. Gold thrives in this setting.

• Gold is in a long-term bull market that demonstrates no signs of being over. In fact, Gold made new highs in 2009 in multiple currencies, including the Euro, Swiss Franc and Canadian Dollar (among others). Here’s a 10 year weekly log scale chart of the price of Gold relative to the Swiss Franc, people’s traditional fiat currency “of last resort”:



• Finally, consider the Dow to Gold ratio, or a ratio of the “price” of the Dow Jones Industrial Average divided by the price of an ounce of Gold in US Dollars. This ratio will absolutely reach 2 before this secular bear market is over (the bullish scenario for those who are anti-Gold) and could fall below 1. In other words, maybe Gold won’t make you rich in deflation but it will preserve your wealth and allow you to buy a whole lot more shares of the Dow Jones once the dust settles. This ratio filters out the effects of inflation or deflation, since the ratio hit 2 in the deflationary 1930s and 1 in the inflationary 1970s. Here’s a chart of the last 30 years of action in this ratio on a log-scale weekly chart:



Now the ratio could reach 2 with the Dow at 4,000 or 20,000 (I think the former is much more likely) and either scenario is bullish for holders of Gold and indicates a higher return for Gold relative to holding the stocks that make up the Dow Jones Industrial Average (or the S&P 500).

I think the intermediate-term low for Gold is already in and we are set to re-challenge $1000/ounce. We may or may not make it through on this attempt, but the time is growing short for the breakout above $1000/ounce to occur. Once $1000/ounce becomes support instead of resistance, the final stage of the bull market in Gold will be set to begin. Based on the recent events in Europe, I would say that by the time ATM machines in the U.S. are installed to allow people to buy Gold from ATMs in this country, then it will be time to start thinking about the bull market in the Gold price coming to an end. A sentiment event like this, coupled with a Dow to Gold ratio at or below 2, is when I’ll start looking to trade Gold for something else. Until then, Gold is the safest and best no-brainer investment and wealth preserver out there.

And don’t get me started on the Gold miners, because once this cyclical bear market in equities is just about over (we’re not close in time or price yet), this will be the go to sector and will strongly outperform other investments, including the price of Gold. Those looking to buy in to the Gold stock bull market are advised to be patient, as good buying opportunities will come along later this summer.

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2009 Copyright Adam Brochert - 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.

Adam Brochert Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Dave at latestgoldprice.net
30 Jun 09, 17:25
While its cheap..

Get some Gold while its still cheap, the collapse hasn't even begun yet, wait for the tidal wave hitting us all because when the illusion of paper money comes tumbling down people will move back to barter and trade, nothing is better than gold as store of value, its lightweight compared to the value it stores.


Post Comment

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