The new spot future high close in this US Dollar Gold bull market was set on October 11 this week when Gold closed at $US 751.30 - thereby closing ABOVE the $US 750 level for the first time since February 1980. We are now seeing even mainstream US financial media predicting that Gold might well make a run at that now fabled January 1980 all time high of $US 850 "sometime next year". Mr Harry Schultz, who is one of the oldest and canniest (along with Richard Russell) Gold "watchers" in the business, is predicting $US 1600 Gold next year.
Before you keel over at the delicious thought of such heady Gold levels, there are a number of things you should consider. And no, we are certainly NOT saying that such Gold prices are beyond the dreams of "avarice". On the contrary, they are quite modest given the full context of the nearly 28 years which have passed since Gold actually did trade at $US 850 in January 1980.
First of all, here's a chart we posted on this page on September 7, when Gold broke above the $US 700 level for the first time this year. This chart shows the ratio between the $US Gold price and the USDX. The ratio is derived simply by dividing the spot future Gold price close by the spot future close on the USXD and multiplying the result by 100.
That was how the chart stood on September 7. Now, take a look at it updated to October 12:
This chart should make it crystal clear that the big Gold price rise over the past seven weeks has been, in the main, a "reciprocal" action to the falling US Dollar. In terms of the Canadian Dollar, which recently regained parity with the US Dollar and has risen further from there, Gold is still BELOW where it was at the start of the year. In terms of the Aussie Dollar, which is at two-decade plus highs against the US Dollar, Gold is a mere 2.33 percent above the point at which it started the year.
Now lets look at Gold's comparative performance against the stock market in 2007. In some countries, notably Japan and the US, Gold has actually outperformed the stock market. But those countries are few. In most countries, stock markets have risen much more than Gold has this year in percentage terms. Here are a few examples
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As you can see, in the first three countries in this table, Gold has outperformed the stock market so far this year. In the latter four countries however, the percentage gain on the stock market dwarfs the gain on Gold. This is especially the case in China, of course, but a 120 percent gain in a stock market inside ten months is a rare historical occurrence. Suffice it to say that investors in Germany, Australia, Canada, China and many other countries haven't been overly impressed with the Gold price rise this year since the rise in their stock market is MUCH bigger. Besides, investing in the stock market is so much easier for them to do. Investing in Gold, especially in PHYSICAL Gold, is an arcane practice fraught with difficulties.
For another reason why Gold has still not registered as an investment "alternative" with most people in the world, take a look at the table we run at the bottom of this page. Gold is in a bull market in terms of ALL major currencies, but it is at new bull market highs in terms of only two, the Japanese Yen and the US Dollar (and several Asian currencies which are still tenaciously holding onto their artificial "peg" against the US Dollar). It is true that Gold in Euro terms has hit 2007 highs, but it is still languishing well below the highs it set in May 2006. The same is true for Canada, Australia, New Zealand and a host of other nations. To give you an idea of the magnitude of this, consider Gold's Aussie Dollar 2006 high of $A 928.60. At present, Gold in Aussie Dollar terms is $US 828.10. On October 12, the Aussie Dollar closed at $US 0.9042. At the present exchange rate, it would take a US Gold price of $US 839.60 to get the Aussie Gold price up to its 2006 high of $A 928.60. That's only about $10 below the all time high $US Gold price.
In $US terms, Gold has risen almost $US 100 in the past seven weeks. In terms of most other currencies, its rise has been MUCH more subdued. In the US and Japan, Gold is at new bull market highs. In most other countries, it is not. In the US, Japan, and a few other countries, the Gold price rise this year exceeds the rise on the stock market in percentage terms. In most countries, however, the reverse is the case. Indeed in many countries, the stock market has risen multiples of the Gold price in percentage terms.
Gold has religious significance in many cultures. It has a legacy of being money in nearly all countries. All over the world, prudent individuals own Gold to protect themselves and their loved ones from the depredations of governments and Central Banks. But as an INVESTMENT, Gold has not yet shed the reputation it built up in the nearly two decades when it spent most of the time languishing in a band between $US 300 and $US 500 and especially in the five years or so when it spent almost all its time BELOW the $US 300 level.
Gold is in the finest kind of bull market, a "stealth" bull market. The vast majority of potential investors have not even noticed its rise yet. They will. Be patient. And be happy YOU noticed a long time ago.
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