Now that Gold has allegedly "decoupled" from the Euro and is rising against a still rising US Dollar, even many mainstream investment pundits are predicting a "surge" in the Gold price in coming months as more and more investors look to "hedge their currency risks".
With this in mind, it might be a good time to see how "beaten down" Gold still is in comparison to its heady bull market highs of a quarter-century ago in January 1980. The table which follows shows a comparison of the Gold "price" in seven currencies. Note the BIG "price" falls in terms of all these currencies since January 1980.
Note too that Gold has fallen MUCH further in terms of some of them than it has in terms of others. In this respect, the Yen and the Aussie Dollar stand out. In Yen terms, Gold is still VERY cheap indeed. In Aussie Dollar terms, it is comparatively expensive.
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* Gold in D-Marks was 1470 on Jan 21, 1980. The Euro replaced the D-Mark in 1999 at a ratio of 1 Euro = approx 1.97 D-Marks.
One other point to ponder. In January 1980, the US CPI was 85.4. It is now about 195. Therefore, for Gold in US Dollar terms to have retained the purchasing power it had in January 1980, it would now have to be "priced" at $US 1962 - that's 345% above its present price of $US 440.50.
To put that in perspective, the Dow closed on January 21, 1980 at 872. To preserve its "purchasing power", it would now have to have to be "priced" at 2012 - that's 412% below its present level of 10298.
Such have been the distortions of the past 25 years. But using a wider comparison between the Dow and Gold, let's look back 100 years:
Keeping in mind that the first four comparisons above deal with a fixed US Dollar Gold price, the patterns are still interesting, for several reasons:
In one sense, such questions as the last two above are whimsical. It is, however, a well known adage of history that it tends to repeat itself because most people neither have any knowledge of it nor take any notice of it. In 1971, with Gold having been fixed at $US 35 per ounce for nearly 40 years, any suggestion that it would rise to $US 850 within a decade would have made one the laughing stock of the "civilised" world. Yet it did.
One could have compounded the "idiocy" by going on to state that Gold would rise to $US 850 WITHOUT destroying either the US Dollar or the global financial system as it then operated. Yet it didn't. The global financial system is still operating in the same basic way as it has since the dawn of the "fiat" era in 1973. Boy, is it ever operating!!
So, here we stand in mid 2005 with Gold having broken loose in terms of Euros. The next leg of the Euro - Gold bull market is now absolutely confirmed with Gold having reached almost Euros 367 on June 23, fully 17 Euros above its old high set back in 2002.
The same is true of Yen Gold. At 48112 Yen, Gold is now at its highest level since early 1991, the very early stages of Japan's economic meltdown from its stock/real estate bubble of the late 1990s.
Of course, thanks to the big US Dollar rally thus far in 2005, Gold still remains $US 15.50 (3.4%) below its bull market high of $US 456 set back in December 2004. Should Gold climb above that level in coming weeks or months, it will be at highs in terms of US Dollars last seen in early 1988, as Gold was coming off its post 1987 crash highs around the $US 500 mark. Should Gold get to $US 515, it will have risen to levels not seen since early April 1981.
In sum, we're talking about the potential for Gold to rise to levels not seen in decades. In terms of European and Asian currencies, it has already done so.
It took Gold 21 months, from March 2002 until December 2003, to rise from $US 300 to $US 400. It took 12 months, from December 2003 until December 2004, for Gold to rise above the $US 450 level. Nearly seven months later, Gold is stil below that $US 450 level, and less than halfway to the $US 500 level. It's been a slow grind.
It was a slow grind for much of the 1970s too. Gold soared from $US 35 to $US 195 between mid 1971 and the end of 1974. It then took Gold nearly four years, until July 1978, to regain that $US 195 level.
Markets are like that. The Dow climbed from 776 to 2722 between August 1982 and August 1987. The Dow didn't decisively breach that 2722 August 1987 high until April 1990. Four years later in mid 1994, it had added less than 1000 points. Then it boomed for five years, and trebled in the process. And, in the five and a half years since January 2000, it has been tracing out the biggest super-bull market top ever seen.
March 2002, when Gold decisively climbed back above the $US 300 level, is more than three years ago. The $US Gold price is still less than 50% higher than it was "way back then". Yet it is at multi-decade highs against two of the "big-four" currencies, the Euro and the Yen. It has yet to ascent to those highs against the other two, the US Dollar and the Yuan.
It's not a question of "if", it's a question of when. If the present "lock" between the Yuan and the $US is maintained that long, a new $US bull market high will equal a Yuan bull market high, for obvious reasons. If the lock is NOT maintained that long, then it will be one before the other, the US Dollar Gold price being the prime candidate to hit new highs first.
Financially, the cracks are appearing all over the global system. And now the political cracks are widening fast, both in Europe and in the US. It is now less than two weeks until all the major "players" show up in Scotland for the G-8 meeting. Nothing will be resolved there, of course, no matter how spectacular the posturing becomes.
As we said at the start of this peice - "...many mainstream investment pundits are predicting a "surge" in the Gold price in coming months." They may well be right, much "righter" than they wanted to be.
