Have you considered lately the tables that we update every week on our Gold Bull Market page? This week, we've decided to import them, along with the commentary, onto this page. They make for quite entertaining reading, especially in light of all the frantic trading which has been going on for the past few years. Here they are:
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
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If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt. Which of the three would you have preferred to own since March 2002?
Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:
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Please note that in percentage terms, the $US Gold price rise is more than double the fall in the $US index.
The first table shows the relative performances since Gold climbed back above the $US 300 level to stay in late March 2002. That's forty months ago. The second table shows the relative performances of Gold and the $US since the $US peak of January 2002. That's forty-two months ago.
The relative performance of Gold in $US terms to the performance of US stocks and bonds and the US Dollar itself since early 2002 is eloquent testimony to the benefits of simple patience. Investment in US stocks and bonds (ten year Treasury yields were at exactly the same levels that they are now in early 2002) have gone precisely nowhere. For non-American investors, they have actually gone down for the simple reason that the US Dollar (as measured by the $US index) has fallen more than 26% since March 2002 and by more than 27% since its late January 2002 highs. Yet Gold has more than made up for this, its rise since January 2002 is more than double the fall in the $US index on a percentage basis.
We changed the name of our "Gold Bull Market" study from "Gold - Bottom Or BULL MARKET?" to "The Gold Bull Market" on May 3, 2002 - with Gold at $US 312.50. Gold had spent almost all of the previous four and a half years - since November 1997 - trading BELOW the $US 300 level. It had tried on many occasions to break back above $US 300, only to fail every time. This time, we did not think it would fail. We made the judgement that Gold was now back above $US 300 - to stay. It had a four and a half year bottom formation and a newly established and solid uptrend line to support it. It had distributed ABOVE $US 300 and broken higher.
From that day to this, there have been fluctuations galore but every high was higher than the previous one and every low was higher than the previous one. The $US Gold bull market, now well into its fourth year, is perfectly intact, even though the $US Gold price continues to languish below the highs it set way back in December 2004. More striking by far is the performance of Gold in comparison to the "performance" (or lack of same) of the $US paper markets.
As you know, the "performance" of most of those paper markets has now all but come to a dead stop.
According to the "Volatility Index (VIX), price fluctuations on US stock markets dropped to a nine-year low in July, further complicating the task of the hedge funds. Hedge funds don't care which way a market moves - as long as it DOES move. Hedge funds have been having increasing problems this year showing any kind of a decent return on capital. What "profits" they are managing to generate are being obtained not by market movements, but by increasing the size of the investments and using ever bigger amounts of leverage to trade.
This is true of almost all "profits" in paper markets. On paper, many people all over the western world are living in houses whose valuations have skyrocketed, well over doubling in many cases. The problem is that most of those home "owners" have indebted themselves to an unprecedented extent in order to participate in the real estate bubble. The other problem is that for many of them, the increase in valuations have already been consumed by refinancing. Their "equity" has diminished substantially, the debt owing on the property has increased just as substantially.
The extent of the exposure to real estate has been graphically illustrated this week in the UK. On August 4, the Bank of England (BoE) CUT interest rates - for the first time in more than two years - by 0.25% to 4.50%. By doing so, they established the peak of their rate rising cycle at its lowest level in the past 50 years.
Why did the BoE decide to take this step? The reason is neatly summed up by the latest report on the British real estate market. On August 5, HBOS Plc reported that in July, UK house "price inflation" slowed to its lowest level in NINE YEARS. The year on year increase in UK real estate prices had fallen to 2.3%. In other words, valuations have stopped going up.
In the UK, as in the US, the lions share (65-75%) of economic "growth" in composed of consumer spending. Throughout the real estate bubble in both nations, the driving force behind this consumer spending has been spiralling real estate valuations. Without these spiralling valuations, consumer spending must inexorably fall. Given the outrageous debt levels being carried by consumers in both the UK and the US, there is no better recipe for an almost instant economic recession than a peak to real estate valuations, let alone a fall in same.
Looking at the onset of the first and dreading beyond their worst nightmare the possible onset of the second, the BoE lowered rates, hoping to stave off what is now the absolutely inevitable.
An efficient machine is one which derives the maximum amount of impetus (or output) from the minimum amount of input. The reverse is also the case. Right now, global paper and financial markets are swallowing an incredible amount of input, both in the form of new borrowings and in the form of "churning" existing capital, for almost no impetus at all. Global paper markets at present resemble nothing so much as a field of Olympic 100 metre runners bursting out of their blocks - and running frantically on the spot.
It is indeed a hilarious picture, but one fraught with danger. The Fed can, as in the scenario of Ben Bernanke (who many are touting as Alan Greenspan's successor next year) emit any amount of "money", scattering it from helicopters if necessary. They can use this "money" to buy any amount of US Treasury debt. There is no limit to how much they can offer. But there IS a limit of how much they can "sell".
Western consumers (with the exception of the Continental Europeans) are tapped out. Their savings are non existent. They are still spending more than they earn. On the latest monthly figures, US consumption spending was up 0.8% while earnings were up 0.5%. They are fast reaching the point at which the cost of servicing their existing debt has caught up with their "disposable" income.
And all that is with valuations at present levels. ANY downward break in the valuation of ANY of the big investment categories (stocks, bonds, real estate), will quickly push the Western consumer over the brink. US Stock markets are going nowhere. US bond markets are faltering, with yields now having risen for five weeks straight. Even in the epicentre of the US housing bubble, California, there are warning signals. Inventories of unsold houses are twice the level now compared to what they were a year ago. It takes a "qualifying income" of $US 124,320 to buy a median price house ($530,430) in California. Californians have a median householdIn the midst of all this, the premier means of capital preservation, Gold, has been in an unbroken albeit so far gradual bull market. The funniest thing of all is that none of the frantic buying, selling, financing, leveraging, speculating and manipulating of the past few years has affected anyone with a solid position in PHYSICAL Gold. income of $US 53.840.
The strains on the global paper financial system are IMMENSE! Just as immense an effort is being made by the financial powers that be to deny and obscure them and by the poor unwashed western indivdual to hope they will simply go away. They won't.
These clever people have (or should have) sailed right through it with nary a sleepless night.
The simplest solutions are always the best ones. Getting rich of someone else's liabilities is a game fraught with danger. Imagining one is getting "rich" off one's own liabilities is a case for psychiatric study. Owning something which is NOBODY'S liability is simply common sense. The rarer a commodity common sense is, and it is VERY rare at present, the more sense it makes to own Gold.