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jerryguru69 (90.29)

Gold? It Is Deja-Vu All Over Again

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September 03, 2009 – Comments (11) | RELATED TICKERS: IAU , GLD

Look carefully at the 35 year chart at the bottom of this page:
http://www.goldprice.org/gold-price-history.html
Notice the peak at 1980. The president was “Jimmy” Carter. Gold was just above $900 an oz, and sure to go to $2000 because:

1) the US economy was in the tank
2) the U$ was going down
3) oil exports were high + Arab oil embargo
4) the “asian tigers” were flexing their industrial muscle
Sound eerily familiar?

This what happened next:
**the economy improved
**the dollar recovered, modestly
**people realized that 1920s-Germany-hyperinflation was not going to happen
**gold tanked to $300-400, and stayed there for more than a decade

Will history repeat itself? No one knows for sure. I do know, from watching the price of gold for decades, that:
**gold bugs are always saying that $2000 gold is just around the corner
**spot gold responds not to long-term trends, but daily, to human emotion (cue Mr. Spock’s eyebrow).

11 Comments – Post Your Own

#1) On September 03, 2009 at 9:18 PM, TMFSinchiruna (98.48) wrote:

FYI, gold never reached $900 in 1980, nor at any other time before the recent bull market achieved the mark in early 2008.

spot gold responds not to long-term trends, but daily, to human emotion

This statement reveals that although you may have been watching gold for decades, you have not yet understood it.

If you think our present predicament so closely resembles that of the late 1970s, then likewise I suggest that you take some additional time to comprehend the factors currently at play.

Question: At how many pivotal breakout events over the last 8 years of this secular bull market for gold have you rationalized your non-participation in the sector with a similarly dismissive attitude towards the fundamental drivers of the this protracted dollar-related event?.

 

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#2) On September 03, 2009 at 11:11 PM, UltraContrarian (99.79) wrote:

Sinch, a question for you.  At how many pivotal breakout events over the last 8 years have you rationalized your limited participation in the best non gold/silver investments?

I'm sure like everyone else, you would have liked to make more money over the last 8 years.  Why didn't you?  It seems doubtful that a lack of exposure to commodities was holding you back.

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#3) On September 04, 2009 at 12:18 AM, TMFSinchiruna (98.48) wrote:

UltraContrarian

While I have some concern for the broader indeces at this stage, I have not tried to dissuade investors from exposure to the "best non gold/silver investments" with posts like the O.P. above.

I can't make much sense of your second paragraph.

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#4) On September 04, 2009 at 12:56 AM, ChrisGraley (99.70) wrote:

Hmm...

I'm torn. While I do agree that we are probably gonna see stagflation like the 1970's, I must have missed a few things. I missed the $900 gold back then and although I checked today's news thoroughly, I missed the current oil embargo. I missed how easily we blew off stagflation in the 70's and I missed how gold over $900 an once for 8 months is a short term trend today. I missed how UC knows how much money Sinch has made in the last 8 years and I missed more than anything how bitter people can get when their investments don't go well.

Despite all popular beliefs, we can still argue opinions without resorting to childish behavior.

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#5) On September 04, 2009 at 12:58 AM, UltraContrarian (99.79) wrote:

"While I have some concern for the broader indeces at this stage, I have not tried to dissuade investors from exposure to the "best non gold/silver investments" with posts like the O.P. above."

The dissuasion/persuasion claim is very odd.  Perhaps a couple of dozen people will read Jerry's post while tens of thousands have read your articles, all of which have a strong point of view.

I think you have shut yourself off from a lot of returns outside of the commodity and precious metals sectors.  Don't you agree that if you were a more "complete" investor with a broader perspective you could have made more money over the past few years?  I know that is true for me.

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#6) On September 04, 2009 at 1:02 AM, UltraContrarian (99.79) wrote:

Who's bitter?  I'm sure Sinch has made more money than me (I'm pretty young and my portfolio is still small) and I don't begrudge him a dime of it.  I just think it's fair and an interesting conversation to turn his own question back to him.

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#7) On September 04, 2009 at 1:16 AM, ChrisGraley (99.70) wrote:

Sorry UC, i didn't mean to paint you as the bitter one, but after re-reading my post I can see how it came off that way

Please acccept my apologies.. 

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#8) On September 04, 2009 at 1:27 AM, UltraContrarian (99.79) wrote:

No problem.  Bitter no, you may have detected a tiny bit of snark/impoliteness though.  Something about discussions with Sinch and other commodity bulls seems to get my hackles up, even though I agree with 60 or 70% of what they're saying.

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#9) On September 04, 2009 at 4:50 AM, kaskoosek (99.76) wrote:

Gold was 24$ in the 70s.

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#10) On September 04, 2009 at 8:28 AM, cthomas1017 (30.38) wrote:

The economy did not improve in 1980 under Jimmy Carter.  There was hope with the election of Ronald Reagan (who took office in January of 1981) but the economy didn't improve appreciably until about 3 years into the Reagan administration.  The oil embargo was broken slowly, so there's not really one even that you can point to in 1980 as a breaking point.  Many would argue that it was "Jimmy" going down that eased the world taking advantage of a weak US foriegn policy. 

Certainly, there are election cycles and other world dynamics that were entirely different than they are today.  (For instance, there is no embargo and no strength in OPEC to be the controlling factor around oil prices.)  Our debt load and GDP situation is completely different.  How you can infer that today's situation is similar to 1980 is simply irresponsible.

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#11) On September 04, 2009 at 9:27 AM, TMFSinchiruna (98.48) wrote:

UltraContrarian

I'll be completely honest here. With this present rally I am back to my starting point, but prior to this week I was still in negative territory with my overall portfolio. The reason: the miners shed an enormous amount of their equity relative to the prices of gold and silver during this 18-month correction. For example, the first time gold hit $1,000 before the March 2008 correction, Yamana Gold shares fetched $19. Same with Silver Wheaton, one of my largest holdings. My bullion fund held up very well because I bought shares when gold was under $600 and silver was $8, but the miners dragged me down into the red. I have been forthright with the damage to my portolfio realized through my concentrated position in precious metal miners.

That being said, I never fell back as far as the major equity indeces (Dow and S&P) fell. So, do I regret having spent the last 18 months in mining equities? No. Now in hidsight, sure ... it would have been great to have maintained a large cash position during the early 2008 run-up that would have permitted me to double-down on SLW at $2.51 in November ... but as luck would have it that March correction caught me by surprise. As we surge towards $1,250 gold following a break beyond $1,000, you better believe I'll be raising a bit of cash to take advantage of a major correction, but I'll be content with my concentrated precious metals exposure through the culmination of this secular bull market. 

After all, it's just about the only secular bull market in town!

To be clear, I never recommend to my readers that they adopt as concentrated a precious metals position as I have opted for. I have said that I consider the 5-10% allocation of traditional formulaic approaches entirely insufficient under the circumstances, but I leave the decision of a comfortable allocation to each individual investor to make. I happen to have opted for 85% exposure, but that's just me. :)

Anyway, I hope you appreciate the honesty. I'm not going to sit here and claim to have made a pot of gold by this point in the bull market, although I believe that the bullion banks and other powerful financial institutions have had a strong hand in ensuring that the sector has underperformed its own fundamental strength. Similarly, I believe their control to be waning as the fundamental forces mount, and see evidence of that in this week's decoupling of the breakout from a commensurate action in the USDX.

I feel fortunate to be approaching break-even after a long and deep correction. Many investors may have longer to wait of they are banking on the major indeces returning to pre-collapse levels.

The important takeaway here is: invest in what you know. I know precious metals. This allowed me to sit tight in each and every one of my equity positions as they dipped to extreme lows in October and November of 2008. Imagine watching your second largest equity holding (Silver Wheaton) collapse 87% from peak to trough in the span of 8 months, but remaining calm and positive that it would not only retake that $19 peak, but later multiply to several times that price. While the investment world was wrought with panic, I never lost an ounce of sleep, because I knew the dollar rally had no fundamental legs. This if the beauty of fundamental analysis ... you can tune out the noise of massive market dislocations.

Anyway, I'm rambling.

Fool on!

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