To get a full perspective of the upward acceleration of the $US Gold price this year, consider the facts laid out below:
Then, the $US Gold bull market:
A long-time and well tested investment "rule of thumb" states that if you can take off the table 60% of the rise in any bull market you are doing well and if you can take 75% you are doing very well indeed. Few investors manage to take any more than 75%, no matter how big or long lasting the bull market proves to be. Well, anyone who bought Gold at $US 300 or less has enjoyed 90% of the bull market so far. Anyone who bought Gold at $US 400 or less has enjoyed 68% of the bull market so far.
From the "third" Gold bottom (see above) in April 2001, Gold remained at or under the $US 300 level for a year. It remained at or under the $US 400 level for the best part of THREE YEARS. There was plenty of time to get set. The piquant thing about the Gold "market" now that the metal is above the $US 700 level is that there seems to be more anxiety amongst those that are already "in" than amongst those who are not yet in and who in many cases have no intention to "get in".
Of course, that anxiety is mostly confined to people who don't actually own physical gold in bar or coin form but who own Gold ETFs, have Gold as part of their Super or RRSP or 401K plans, own Gold stocks, or are long in the Gold futures markets. These last are especially concerned.
In fact, we would be presumptuous enough to say that the level of concern about the rapidly rising Gold price is inversely proportional to the portion of a person's exposure to Gold which is in physical form and in personal and private possession. In short, the more physical Gold is owned, the lower the anxiety.
Has the "penny" dropped yet? The people who are concerned that the Gold price is rising "too fast" are those who are treating it as an "investment" - the same as any other type of investment - one you buy with paper money and sell for paper money. The people who are not concerned are those who are treating Gold as financial INSURANCE. They are holding PHYSICAL Gold not primarily as a means of increasing their wealth, but as a means of PRESERVING it by preserving purchasing power.
For people in this latter category, a cursory glance at any Gold chart or a cursory examination of the present state of the paper-based financial system is all the "reassurance" they need. It is clear that the system is teetering on a ledge and cannot be maintained without FUNDAMENTAL changes. It is equally clear that it is absolutely NECESSARY to hold part of one's purchasing power OUTSIDE the system. Gold - and to a lesser extent Silver - has ALWAYS been the best way to do that. But only if the Gold is held in physical form in one's personal and private posession.
As long as the money in circulation is not REDEEMABLE in Gold - and none is - there is no substitute for physical Gold. Most of the world has never forgotten this fact. It is only in the West in general and the English-speaking West in particular where Gold's nearly 3000 year history as the premium medium of exchange has been consigned to the "dustbin of history". The fact is that it is precisely in these countries where the substitution for paper claims to Gold for the holding of Gold itself have been developed and have reached their present "stature". And it is precisely in these countries where the "wall of worry" about the velocity of the increase in the $US price of Gold is most deeply entrenched.
If YOU are worried that Gold is rising too fast, it is a fairly safe bet that most if not all of your exposure to Gold is in the form of paper claims to Gold. It is an equally safe bet that you look on Gold as an investment rather than as the ultimate form of financial insurance against the paper-based and debt-driven financial system. We have said many, many times in these reports over the past decade that the ownership of physical gold is a PRE-REQUISITE. No one should be "investing" in Gold ETFs or Gold stocks or Gold futures/options/derivatives etc. unless and until they have established a core physical Gold holding. Not owning physical Gold is leaving oneself wide open to the system.
If you examine the price in your country of any form of real economic wealth, you will find that its price now is a multiple of what its price was in January 1980, when Gold and Silver were cresting at what remains their all time high levels in US Dollar terms. The best measure of the power that Gold has to insure you against a collapse of any magnitude in the paper system is the simple fact that it remains BELOW the price it was back in January 1980. That makes it, along with Silver, unique amongst real economic goods. It is also a measure of the potential threat it poses to the system itself. No effort has been spared by the financial powers that be to keep the precious metals price DOWN.
To equal the purchasing power it had in January 1980, Gold would have to be at least THREE TIMES the price it is now in US Dollar terms. To compensate for the increase in US Treasury debt which has been piled on since January 1980, it would have to be more than EIGHT TIMES the price it was then. Look at the US stock market and you will find that the Dow, at its May 12 close of 11380, is THIRTEEN TIMES as high as it was in January 1980. Is Gold "overpriced" at its present level of $US 711? We don't think so.
And if you are in Gold for investment purposes as well as having a core holding of the physical metal, the worry and concern about its upwardly accelerating price is actually your best friend. As long as that worry is maintained, you can be completely confident that Gold's rise is NOT over. Consider the "atmosphere" surrounding the US and global stock markets in the late 1990s. Was there any concern over the speed with which the Dow or the Nasdaq or the Ords or the Nikkei was rising. Quite the contrary. Every pullback in stock prices was looked on as an excuse to buy more. The faster the market rose, the higher the demand got. Playing the market on margin and using as much leverage as one could get was taken for granted. There was not a whiff of worry in the air.
THAT is the sign of a dangerous market, a market which is indeed "overbought". The present atmosphere around Gold and silver is the exact opposite. As markets are "supposed" to do, Gold and Silver is climbing an almost vertical "wall of worry". The time to REALLY worry is when that worry is no more. We don't see that happening in the near future.
Given the decades-long history of holding down the Gold "price" and the millenia of trying to subvert Gold as the preferred medium of exchange, the current concern with the rapidity of Gold's rise is completely understandable. It is also, for those who understand the situation, completely reassuring.
Most people in the world will not see Gold as being in a "bull" market at all until its price exceeds that $US 850 January 1980 all time high. Any downturn from any level below that will immediately bring forth anew all the calls that the "bubble" has burst and that Gold is all set up to "crash". Remember CNNMoney's headlines which we featured in our May 9 Special Update? "(Pick a number) Gold: Want in? Think twice". Long may those headlines continue. As long as they do, Gold investors will have little to concern them and physical Gold holders will have no cause for concern whatsoever. What's happening is simplicity itself. REAL MONEY is coming back into its own.