Friday, July 09, 2010

Chart of the Day: Real Gold Prices

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars). 

10 Comments:

At 7/09/2010 4:40 PM, Blogger Benjamin said...

This is a great chart.

Die you moron gold bugs, die!

 
At 7/09/2010 9:02 PM, Blogger VangelV said...

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars).

True but not very relevant. The $850 per ounce price was paid for only a handful of trades. The monthly average in January 1980, which is when gold peaked was $675. To reach that level the monthly average would have to be around $1750, not all that far from the current price level.

What has not been said was that January 1980 was a blow-off top after a bull market that lasted for about a decade. As such, it would be expected that the gold price would decline for some time. But the interesting part is that the price of gold did not really fall in many currencies. Some currencies were devalued substantially because the governments that issued them were bankrupt and out of options.

From where I am standing the US is not all that different today than Argentina or Brazil were in 1980. The best days are in the past and the growth of government can no longer be supported by the economy. The parasites in the public sector are far too damaging to the productive elements in society.

I have been buying gold and gold equities since 2000. The gains allowed me to retire in 2001 at age 41. From what I can see, the bull market in precious metals, agriculture and energy have a long time to go. While the markets will be very volatile as they have been over the past decade the secular trend is still positive.

 
At 7/09/2010 9:18 PM, Blogger VangelV said...

I recommend the following bit of video. The bits about the CFTC hearings and the issue of the paper gold are very interesting.

http://www.cnbc.com/id/15840232/?video=1538347357&play=1

 
At 7/10/2010 4:27 AM, Anonymous Kevin said...

VangeIV
It's clear from your writing that you have an agenda. But, how dumb do you think we are when you say:
"I have been buying gold and gold equities since 2000. The gains allowed me to retire in 2001 at age 41."
You could retire one year after investing?! Please, you're a liar.

 
At 7/10/2010 9:21 AM, Blogger VangelV said...

You could retire one year after investing?! Please, you're a liar.

Actually, I made more in one year than I did in the 15 years that I was working.

My investment was actually very small; I had purchased long dated warrants that were very cheap because the equities that they allowed me to purchase were far from their strike price.

It was never my intention to stop working. I took a buy-out because the manufacturing facility that I was working in was closing down. The terms of the deal was that I would give up 50% of the severance package if I got a job within the first year. After 15 years of working I was looking for a break so I took my wife and kids to China for a little vacation and did some of the things that I was looking forward to doing. By the time I could work without penalty there was no need to.

If one were looking to take advantage of the opportunities before us it is simple to become wealthy. (Simple does not mean easy because the volatility manages to get most investors to get out of their holdings even though there is a long bull market ahead.) If I were scared of the volatility and did not wish to gamble I would be looking at some of the royalty players as a low risk to benefit from a recovery or a catastrophe. Keep in mind that those that bought Franco-Nevada in 1985 were looking at more than 30% annualized returns even as gold was into a bear market that lasted for another 15 years. I suspect that the investors in Franco will do as well as before even though they will not be able to claim the odd 50-baggers that come from owning the high risk juniors. Of course, they will also not have holdings that go to zero either but that is a discussion for another thread.

I would also look at Royal Gold, Silver Wheaton, possibly Endevour Financial. And if you have a strong stomach I would look at a small company like Eurasian, which I have been buying over the past few years. If Eurasian does not get its Hatian properties confiscated by the UN or the corrupt local government it is looking at another billion or so in value not reflected in its price. But even if it loses all of Haiti its Turkish, Eastern European and Kyrgyzstan properties are worth more than the company's market price. I would keep an eye for a severe correction in the market that takes the price lower (50% would be great) and load up with my gambling money. The royalty model works and David Cole's ambition to be the next Seymour Schulich or Pierre Lassonde may yet pay off for his shareholders. And do not forget Silver Standard or Pan American Silver. I would be buying them on any severe pull-back, particularly during the typical weak period in the summer.

 
At 7/10/2010 9:25 AM, Blogger VangelV said...

Here is another view from a good fund manager.

http://tinyurl.com/242v3uk

 
At 7/10/2010 10:29 AM, Blogger bix1951 said...

the move in gold over the past 10 years is obviously a real move and must mean something
I find it interesting that this time corresponds to the war on terror
is that just coincidence?
does gold go up during wars?

 
At 7/10/2010 11:12 AM, Blogger VangelV said...

I find it interesting that this time corresponds to the war on terror
is that just coincidence?
does gold go up during wars?


Gold had to go up because a two decade bear market drove down its USD denominated price way too far. While gold should not have hit the $850 level for those handful of trades on January 21, 1980 it also should not have fallen to $252 in 1999 but that is what sentiment does; it pushes the price movement far further than the fundamentals would suggest.

Now it is also obvious that wars help the price of gold but that happens because wars are funded by borrowing and running the printing presses. The more money that is created the better the fundamentals for physical bullion.

We now have governments all across the globe in trouble and doing all that they can do to prevent the crisis that they helped to make possible. Given the political incentives it seems obvious that most of the activities will concentrate on creating more liquidity and increasing the supply of money and credit.

The problem with that approach is obvious; printing money does not create goods and services and causes wealth to be destroyed, not created.

 
At 7/10/2010 5:27 PM, Anonymous Lyle said...

Interestingly if you take the data of the consumer price index from 1913 till now you find that the cpi has gone from 9.8 to 218. This is about 22.24 times. If you then find the gold price of $20.67 you get a price today of $459 per ounce. However if you were to go back to 1834 when the us price was set at 20.67 I suspect that the number would be much higher, but the long deflation following the Civil War might complicate things.
But then the issue as many have described it is that the gold fetish of the Central bankers is a large part of the reason we had the great depression. The sooner a country got off gold then the better. The Late 1800s deflation was caused by the supply of gold not meeting the demand, so that the price of everything else went up relative to gold. (Partly this is because at this time silver got driven out as a money analog)

 
At 7/10/2010 7:49 PM, Blogger VangelV said...

But then the issue as many have described it is that the gold fetish of the Central bankers is a large part of the reason we had the great depression.

This is nonsense. The Great Depression was created by the economic meddling of Hoover and FDR, not the stock market crash in 1929 or the gold standard.

The sooner a country got off gold then the better.

More nonsense. It is a historical fact that fiat currencies collapse as they lose purchasing power due to money printing by the authorities that control the issue of money.

The Late 1800s deflation was caused by the supply of gold not meeting the demand, so that the price of everything else went up relative to gold. (Partly this is because at this time silver got driven out as a money analog)

You need to go beyond the Keynesian mythology and look at real economic history. The classical gold standard was the greatest creation of Western civilization and as long as it was in place savers were protected from inflationary confiscation. While it lasted there were very few wars and without its end World War I would not have been possible.

As Buffett argued so eloquently, human freedom is not possible without money that is redeemable in gold. That is why the first thing that Lenin, Mussolini, FDR and Hitler did was outlaw individual ownership of gold. (Lenin argued (and demonstrated) that the best way to overthrow the established social order is by the use of irredeemable printing press money.)

But we do not have to look to Russia or Germany to see what happens when governments turn to printing press money because the example of the US is sufficient. After a century during which the dollar gained purchasing power we saw the creation of the Federal Reserve System and the replacement of gold backed notes with Federal Reserve Notes that were not backed by anything. As a result, the USD lost more than 95% of its purchasing power during the subsequent 98 years and savers were no longer capable of saving for their retirement by holding deposits. The situation since August 15, 1971, when Nixon closed the gold window has been even worse as the FRN has lost more than 80% of its purchasing power over four decades.

 

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