Have any of you looked lately at the POG chart from the 1970's? (Macrotrends has some very good, interactive, free charts.) The 40-year-old chart and the recent chart rhyme in an interesting way. (The macrotrends chart prices are inflation-adjusted but the relative moves and timeline are what matter.) I do see one discouraging thing there, however. From the 12/74 short-term double top at $802 the retracement to the short-term bottom at $433 took 20 months. Of course the price tripled from there over then next 16 months.
I am an utter amateur when it comes to this, so I'd be grateful to hear from all of you. One question I have is whether the timeline is likely to be compressed this time around given the differences in trading 1974 vs. 2013.
BTW I have noticed that the non-financial press is talking about gold as if this were 1980, not 1974, and that is encouraging.
Musings about gold.
1)I Read this past week the average bear market decline, in years past is 31.6%. The most recent decline (high to intraday low) was 1921-1321.50 or 31.2%.
2)Central banks bought more gold in the 4th Q than any other quarter in history-145 tons. For 2012 total buying was 535 tonnes, 2011 was 457 tonnes.
3)On Monday, 4/15 total central bank buying was 55 tonnes
4)Under $1400/oz, some mines around the world no longer are profitable, nor do they positively cashflow
That would suggest some mines could close-curtailing supply
5)The 1979 peak was $875, inflation adjusted an "equal" peak would be $2500+
6)China's gold holdings as a % or reserves is about 1.6%, Japan is about 3.1%. Where as the US, Germany, France and Italy are all over 70%. That implies to me, China and Japan could be outsized buyers for years to get the gold holdings up as a % of banks reserves. Japan, especially, because they are pursuing higher levels of inflation, both central bank and its population at large could become a huge buyers of gold to hedge against inflation and/or a falling currency.
Debt levels are increasing around the world, especially government debt. Governments will tend to want higher levels of inflation to make servicing that debt with "depreciated currencies" easier. Funny thing about inflation, once it gets going it is hard to "slowdown" as domestic political pressures weigh against the "benefits" of low levels (1-3%) of inflation vs the drawbacks of recessions. It may take 12-18 months for inflation pressure to build up-any increased easing by the ECB will accelerate the process-but with money supplies generally growing faster than supplies of good and services and QE the default policy response for slowing economies-the odds are good, gold, once it completes its "bottoming" process will grind higher-perhaps much higher.
Another way to look at gold is vs the S&P 500. At a recent bottom 2000-2001, it took 5 OZ of gold to equal the S&P500. At its peak, 1979, it took .3 Oz or gold. With gold around $1400 and the S&P 500 around 1550, it takes about 1.1 OZ of gold to buy the S&P.
Should gold even trade at it "peak" again, with the S&P around 1550, then the peal would be 1550/.3 or $5166/oz. Even at a more conservative 1550/.5=$3100/oz.
So, yes gold can back up further, as part of the bottoming process-I do think it is a bottoming process because central banks, if they err, will err on the side of providing more liquidity-so future "peaks" whether inflation adjusted vs the 1979 high or compared to the S&P 500 are double or 4X current prices.