Rick Ferri wrote:There are other charts going back 1,000 years and 500-600 is the eye-ball price.
That would be relevant if the money supply in which gold was priced grew only slightly more than the supply of gold during the same span of time. Unfortunately, that's not the case.
Rick Ferri wrote:
Thats the reason gold bubbled - real, honest to goodness double-digit inflation! Where's that inflation now? Nowhere. For the past 10 years we've been told by the gold bugs that hyper-inflation is coming. Where is it? It's all speculation. Gold has gone higher on a hoax.
So....what you're saying is starting in 2000, gold bugs all over the world decided to band together and create an inflation hoax in order to convince the world to buy more gold? And they've succeeded in fooling the world--including those amazingly efficient markets--for almost 12 years now? And they say gold bugs wear tinfoil hats...
The truth is persistent negative real interest rates create bull markets in gold. Investors don't like negative real rates, so they buy gold. The inflation you don't see in the U.S. has been exported to the rest of the developing world. Countries maintaining dollar pegs recycle trade surpluses back into US federal debt while simultaneously creating new domestic currency in order to maintain the peg and advantageous FX rates for domestic exporters.
Gold has been the means of settling international trade for most of the modern era. We've only been on this experiment for 40 years, where the currency exchanged for goods is not convertible into a tangible store of value. When that will change is anyone's guess, but when it does it will be a tectonic shift, not a gradual and peaceful exchange. What you are witnessing is increasing investor dissatisfaction with the USD as an international store of value and means of settling international trade.
The thing is, gold standards might not be sexy, but they mute the natural boom-bust cycle of malinvestment and cleansing. Ever since we granted monetary policy decisions to the Fed, the boom-bust cycles have been greater in magnitude. The duration of the cycles remains the same: roughly 16-20 years between equity and commodity secular bull markets. We're about halfway to 2/3 through this one, if you're keeping score at home. The end is where we see the fireworks (ie--parabolic top).
We'll need to see the gold price near MB and/or FDHBFI before this cycle is through. For instance, back in the 79-80 blow-off, the high gold price covered both U.S. MB as well as FDHBFI. For much of 1980, we were on a de facto gold standard. After confidence had been restored in the dollar, investors moved back into riskier assets such as stocks and bonds. Wash, rinse, repeat.
At the moment the gold price would need to reach about $9700 to cover the U.S. MB and roughly $12,000 to cover federal debt held by foreign investors (central banks only). I'm not saying we will get to those numbers exactly. Frankly, I don't know exactly where the peak will be because it will be determined by future policy decisions, but it's not at $1500, I'll tell you that much. The point is, you will never, ever
, see $600 gold again. Yes, I said never. It will never happen. At the moment I see $5,000 as very reasonable, in fact probable--short of a deflationary spiral taking hold.
Also, interesting you mention the Nasdaq. Here's a neat little graphic I just noticed today, comparing the 1980 gold peak, 1999 Nasdaq peak and the current gold bull market. Which one doesn't have a parabolic peak yet?
What you will witness, Rick, is the continued outperformance of gold relative to equities for the next 3-5 years and possibly up to 10. We already have you on the record for $500 gold by 2011. Now you have me on the hook. We'll see who's closer to being right on this one.