Those who learn from history are doomed to repeat it
....ad nauseum to people who couldn't care less.
Ok, so I don't know if we've done this before, but if we take a bunch of simple ratios from the last gold bull market/bubble, we can come up with a thumbnail sketch of what to expect in this one. Where did gold start in the 1970's gold bull? $35/oz. Where did it peak? $850/oz. Where did it come to rest, as a floor (or trampoline), the price below which it never sank again? $257/oz ($257.30, to be precise).
So first we have ~24.28:1, the peak price to starting price ratio. If we apply that (erroneously, but bear with me) to today's gold bull market, we get a (tentatively) projected high of $6,248/oz.
Next ratio ~7.35:1, the latter floor to previous floor ratio. If we apply that to today's gold bull market, we get a future floor of $1,891/oz. I am not kidding.
Now, of course, today's gold bull market does not necessarily need to reflect that of the 1970's exactly, but why does $1,890/oz seem like such an astronomical price, when it is no higher compared to the $257 we are coming from than $257 is from the $35 it came from. It just seems really high, because.... well, because people, as a rule, are stupid and lazy - too stupid to know ratios offhand, and too lazy to figure them out (see, I may be stupid, but I'm not lazy - oh wait, I am definitely lazy, but through some bizarre confluence of events, I happened to have the diligence to calculate these few ratios).
What about that $6,248 figure? For reals? Yes. Of course, past performance is no guarantee of future results. But then, if there is any reason to expect things to be "different this time," it has nothing to do with gold "underperforming" in the many decades of the gold window handing out Ameican citizens' gold to foreigners who are wisely ditching their dollars. It has nothing to do with changes in how much gold is mined each year. It has everything to do with Federal deficits and the monetary base being much higher and rising much faster than they did in the 1970's, and the Fed funds rate being lower, and staying low longer than it did in the 1970's.
When gold peaked at $850 in 1980, the Fed target rate was 18-20% (they were so panicked that they targeted not a specific number, but a range that was broader than the difference between today's rate and zero). When the Fed target rate approaches 18%, I'll start to reexamine calling a top in gold. It's 0-1/4% right now and they've promised they won't change it for at least two years. No worries. (Also, the rate at which the Fed increases the target rate might become a concern. If cavemen storm the Eccles building and beat Bernanke to death with clubs, and then start to implement their own Fed policy, that is.)
Besides deficits and low rates, look at the timelines. $35 to $850: 10 breathless, frantic years of about 37.5% annualized returns. $259 to $1,812.50*: 10 measured, constrained years of about 21.5% annualized returns, while the fundamentals (the decay of the private sector and the explosion of the monetary base) have been far more favorable. If gold were to get to 24 times its previous low (as it did in 1980), it will have taken a lot more than 10 years, and I expect the longer gold bull market to be a larger one in terms of price change as well.
With all things considered, a high of $6,250 and a future low of $1,890 are pretty conservative, not wild-eyed predictions of raving lunatics. Rather than being the top of the bubble, we are about (or below, depending on Fed policy) where the bursting of a gold bubble is liking to land. Look for gold prices to triple or more from here, and, as others have said, watch for gold mining stocks and silver prices to gain relative to gold when the gold bull market turns into a bubble. Right now, the gold bull market is just a bull market, and a relatively sleepy one at that.
*Gold reached its 30-year low of $257 in 1999, but to be fair, I calculated 2001 as the start of the gold bull market, because it reached $259 and change that year.
Note: nothing has been inflation-adjusted, because that would be absurd.