Posted on 10/30/2010 10:19:58 PM PDT by blam
Why, because it's disadvantageous to those who are encouraging people to buy gold? It's just as real as judging gold by the weak currency that preceded it.
Look, it's a safe haven, I don't dispute that. I own precious metals myself, but I'm not going to get so caught up in the matter that I lose my *** when it inevitably starts back down again, as it has again and again. It's bought during times of economic upheaval and sold in times of prosperity. That's the driver of the currency strengthening as well. It does not serve any argument about a looming hyperinflation.
We have not even come anywhere near hyperinflation, ever, in the history of this country, unless you want to delve into the very uncertain currencies present during the Revolution (have an ancestor whose Rev. pension application details his trials when his pay in Continental money had depreciated to worthlessness) or during the latter stages of the Civil War with Confederate money doing likewise (ancestors who lived through and endured that as well).
If you want to buy and hold gold by all means do so. I've told you that it's not an historically good thing to buy and hold long term, and even your own graphs show you that. But, it's your money. Have at it. Me, I'll hold it until the trend is clearly downward, I bought in early enough to afford that luxury and still have a very nice return. Certainly didn't get in at $250 or whatever as so many here brag, more like twice that in the wake of 9/11. It's been good to me but it's delusion to think it always will be.
... but this time it's different, right? This isn't a blip and it's not a bubble?
Please show this long term curve that demonstrates the correctness of the author's argument, then. I'm interested in learning something new.
When the tie was broken, the price in US$$ varied but the peak was of very short duration
I have looked but can't find the chart dating from 1793 that illlustrates the point well. There is also a chart for hundreds of years that is pretty much flat and the spike is barely noticeable. This one shows the very short duration of the spike as well
Not at all. That time period actually illustrates the volatility of the US dollar. It is the dollars volatility that corrupts the price of gold in dollars during that time period. But if you want to use a time period where the dollar doubled in value and then dropped half that value again all within 5 to 6 years, fine. But some might think you are illustrating the authors point. Gold rose in dollars during the Jimmy Carter years. Seems like a reasonable response to me. Then it fell and slightly recovered when the dollar went on its hyper roller coaster ride. Then from 1988 to 2000, gold was fairly stable. Starting rising again in dollars after the dot com crash, 911 and the War in Iraq and Af/Pak. Now we are setting absolute high gold records after the Financial Sector collapse in 2008. Followed of course by the Mortgage Crisis and now the potential currency and trade wars. All seems like reasonable behavior to me.
Good catch. Thanks.
True - but what if the Chinese decide to artificially prop up the dollar...
I’ll let the charting wizards do it, but overlaying the 10 years prior to now, and the 10 years prior to the 1980s peak (it was a bubble), with the present and the peak adjusted to the same level, on a logarithmic scale, will make it clear that our current steady rise is nothing like the brief 1980 spike.
Here's the 5-year runup to 1980 (note that the peak in 1980 was well above the end of this chart):
So, after years of trading in a range where peaks were double the minimums, gold quadrupled in a year (then lost most of that quadrupling to return to something above the prior range). Currently, we have seen a tripling in 5 years, but smoothly occurring over that period. In any year, the increase has been at most 50% gain.
This makes the current period look like the gradual runup we saw in 76-79, when gold tripled. I'm not convinced that this means that history will repeat, but it seems far less likely that we are currently in a bubble, than at the point before a bubble even starts to build.
When gold has quadrupled in a year, I'll be ready to accept that it may drop by half or more, but we're nowhere near that.
My most likely scenario is that gold rises to $4000 sometime in the next 3-5 years, and drops back to a stable market price of about $2500.
Or maybe we have hyperinflation, and the price of gold in dollars becomes meaningless. Or we may have restored fiscal sanity in 2012, and gold settles out where it is. Or maybe it drops to below $1000, and I buy more after picking my jaw up off the floor (because the foreclosure mess and entitlement obligations still point to serious inflation).
To put the 1979 bubble in perspective:
In August of 78, Gold broke through the $200 barrier after years of trading in the $100-200 range. (Paper bugs were worrying that it was a bubble).
By September of the next year (1979), gold doubled its record, hitting $400 (one-third of that gain coming in the final two weeks of the period).
In the following 15 weeks, gold doubled AGAIN (with half of that rise in the last two weeks of the period).
THAT, my friends, might be an indication of a bubble.
Note that the price stabilized in the $300-400 range for years to follow (with ample opportunity to sell at over $500, so unless people bought in the final month (after gold had more than doubled an all-time high in a year), they enjoyed ample gains.
I'll leave it to others to overlay these, but it's pretty clear that the past pattern is not being repeated presently.
I got these from a very handy charting site:
http://quotes.post1.org/historical-gold-price-chart/
Today's price is 5.7 times the price back then, so if history repeats, you can expect gold to peak at $4869 in July of 2011, be at $3360 a year later in July 2012, and bottom at $1635 in 2016, before it begins another climb.
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