This Gold commentary (and the rest of our GTW weekly updates) was postponed by 24 hours this week because we were entertaining some old and dear friends who were visiting us. The talk was good and far ranging, but it didn't include Gold. We were quite content with that. We were more into reminiscing than talking about the present state of the world.
But on second thought, a plus $US 320 Gold price does give reason to reminisce. After all, Gold has only briefly poked its nose above such heady levels since it fell off global investment radar screens by plunging below $US 300 back in November 1997. The first two occasions, in Sept/Oct 1999 and again in Feb 2000, marked the beginning of the bottom. This time marks the end of it, and the beginning of the Gold bull market in earnest.
If one is confident that this IS the beginning of the Gold bull market "in earnest" - and we are - then it is interesting to go back and take a look at how the previous bull market started. As you can see, it started with spot future Gold at $US 325.80 (intraday low) on March 10, 1993. That's still ABOVE where Gold is now. In fact, the significance of the long drawn out Gold Bottom which lasted from August 1999 until April 2001 was that all the Gold "spikes" during that bottom stalled right at or below that March 1993 level.
It is even more interesting to reflect upon the level at which ALL previous Gold bulls have started since the $US and Gold were "decoupled" in August 1971. These bottom levels are: 1971-$35, 1976-$102, 1982-$US 296, 1985-$US 282, 1993-$US 326, 1999-$US 252. Can you see the pattern?
Up until 1993, with one exception, each Gold bull started from a higher level than the preceeding one. The exception was the bull which began in 1985 from a slighly lower level than the previous 1982 Gold bull. The reason that Gold started from a slightly lower level then was that the U.S. Dollar in early 1985 was at the top of a RAMPANT multi-year bull market during which its exchange value soared against ALL other major global currencies.
To give an illustration of the power of this early 1980s U.S. Dollar bull market, the Aussie Dollar began 1984 at about $US 0.89. By the time of the Gold bottom in March 1985, the $A had slumped to about $US 0.70. That's a fall of more than 21% in not much more than a year.
The point here is that while the Gold bull of 1985 started off from a point lower than the Gold bull of 1982 in $US terms, it did NOT do so in terms of any other major currency. In $A terms, for example, the $A Gold low of 1982 was MUCH lower than the $A Gold low of 1985.
Now, look at the starting points of the last two bull markets - $US 326 in 1993 versus $US 252 in 1999. At the start of the current Gold bull market, Gold was 22.7% below its 1993 low. It was also below its 1993 low in terms of ALL other major currencies. When Gold hit its 1999 nadir, it was at multi-year plus lows in terms of EVERY major currency in the world.
Now, with Gold's 2002 high closing price of $US 322.80 set on May 23, Gold has not yet reached its previous bear market low - $US 326 in March 1993. And we have learned technical treatises coming out from some Wall Street analysts (of the few which have noticed Gold at all) which state that Gold is now radically "overbought"! Give us the proverbial break! In historical terms, Gold hasn't even gotten STARTED yet.
Do you think that there is such a thing as a stock market investor, or a stock market analyst, who could imagine a "bull" market which does not even rise to the level at which the previous bear market BOTTOMED? Neither do we, yet we get such dribble as that mentioned in the previous paragraph. It has always been a fascinating - and hilarious - experience to watch financial analysts try to account for a RISING Gold price. This Gold bull market promises to top all previous howlers by a considerable extent.
Since the beginning of this century, the U.S. has been at the end of a rampant bull market in stocks which began in 1982. Wall Street still doesn't want to admit that and U.S. and global investors still don't want to admit to themselves that they can't "get their money back" by investing in the same stocks they happily rode while the bull market was still intact. It is always astonishing how long most investors attempt to ride a "dead horse". By now, if nothing else, they should have noticed the smell.
Gold in $US terms has increased by almost 15% so far this year. Many major Gold stocks around the world have doubled (some have tripled or done even better) this year. This is slowly, ever so slowly, being noticed, but precious few investors have even got the tips of their toes wet yet. Nothing strange about that. All bull markets, not just Gold bull markets, climb a wall of worry. That is especially true of a market which is still widely characterised as being in a plus 20 year bear.
Can you really blame most analysts? After all, as already stated, Gold has yet to achieve the heady heights of the BOTTOM of its previous bull market. That bull market started nearly a decade ago, and only produced a three-year ride (March 1993-Feb 1996) of 27.6%. That's not much for investors who enjoyed an 86% rise - in ONE year - from the Nasdaq as recently as 1999.
If one goes back to the now grudgingly accepted Gold "bottom" of $US 252.50 set in August 1999, Gold's rise in this bull market as of its May 23 intraday high of $US 323.30 has been 28.04%. That's BIGGER than the entire 1993-96 bull market, and Gold hasn't even got to where that one STARTED yet.
Deceptive, isn't it? $US Gold is now in its biggest bull market since 1985-87, and most people have not yet even noticed it. Of course, you have been reading Gold This Week, and you noticed it a LONG time ago. Reminiscing can be fun, especially when one then uses what happened in the past to project what is likely to happen in the future.
We said LIKELY to happen. The future is uncertain - ALWAYS. But with Gold not having even reached the "surface" yet, the gains already under our belts are nothing to sneeze at. Here's hoping we all catch pneumonia
