If you have read any year-end synopses for Gold in $US terms, you probably know that in percentage terms, 2007 was the "best" year for Gold since the signal year of 1979. As you can see in the table below, Gold was up exactly $US 200 - $US 638.00 to $US 838.00 or 31.35 percent - in 2007. In 1979, the nominal rise was greater, but not that much greater. Gold was up $US 328.80 in 1979. In percentage terms, however, the rise was more than FOUR TIMES what has occurred in the year just ended. In 1979, Gold rose 140.27 percent - from $US 234.40 to $US 563.20
You have also probably heard that 2007 marked the seventh year in a row during which the $US Gold price ended the year at a higher level than it started it. That is true. Here is Gold's annual performance - on a spot future closing basis - in $US terms since 2001:
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On December 28, spot future Gold closed at $US 842.50. This is the third highest spot future close since the last official link between the US Dollar and Gold was severed on August 15, 1971. The two higher spot future closes? They were on January 18, 1980 when spot future $US Gold closed at $US 858.40 and on January 21, 1980 when spot future $US Gold closed at what is still its all time high - $US 873.50. On a SPOT basis, Gold's all time high is $US 850.00 - set on January 21, 1980.
Please note here that most of Gold's fabled rise in the 1970s came in the seven months between July 1979 and January 1980. Gold reached $US 195 at the end of 1974. Four years later, at the end of 1978, Gold closed at $US 234.40. Six months after that, at the end of June 1979, Gold was still below the $US 300 level at $US 290.10. Gold's first close above $US 300 came on July 9, 1979. Its first close above $US 400 came on September 27, 1979. And its first close above $US 500 came on December 18, 1979, a mere month before Gold "topped out" at $US 873 on a spot future basis.
Now, the best part of three decades later as we enter 2008, Gold has clawed its way back to its highs. Consider what has happened to paper "assets" in the meantime. The Dow is more than 14 times as high as it was in January 1980. All other world stock markets, even the Japanese stock market, are at multiples of their 1980 levels. Countless TRILLIONS of US Dollars worth of $US paper assets of all descriptions, notably derivatives, did not even exist in 1980. A sum which would have bought a "McMansion" in 1980 would now not even pay for a tarpaper shack today, even with the recent falls in US house prices.
In 1980, the US government had yet to rack up $US 1 TRILLION in funded debt. Today, the US government spends more than $US 3 TRILLION every year and has a funded debt of just short of $US 9.2 TRILLION. Given the gargantuan amount of global inflation (an increase in the total stock of "money") depicted by these figures since 1980, the $US "price" of Gold has been lagging badly, to put it mildly.
That was the case for most of the 1970s too, until Gold finally burst its bounds in 1979 - early 1980.
1979 was THE crisis year for the $US Dollar. The pressure had been growing throughout the 1970s but the crunch came in October 1979 when Fed Chairman Paul Volcker attended an emergency meeting in Belgrade, Yugoslavia. At that meeting, his fellow Central Bankers informed him that he had two choices. He could either stop the rampant inflation of the US Dollar by ceasing to manipulate US interest rates or he could watch as the rest of the major global Central Banks DUMPED their "reserve holdings" of US Dollars and Dollar denominated debt instruments - INCLUDING US TREASURY PAPER.
Mr Volcker returned to the US and announced that the Fed was going to stop targeting US interest rates and start targeting US "money quantities". Gold surged, and then fell back as US interest rates zoomed up to the 20 percent level. The result was a deep US recession, the worst at that time since the 1930s, and the highest internal interest rates in US history. Those interest rates "saved" the US Dollar by luring the rest of the world back into US Dollars.
The same choice has not - YET - been put before Ben Bernanke, the currency Fed Chairman. It is, of course, crystal clear to everyone that US interest rates at levels even approaching the levels which lured the world back into Dollars at the start of the 1980s would literally destroy the debt-based global paper money system with the US Dollar as the "reserve".
That is why the first issue of The Privateer for 2008 - #594, the Early January issue published on January 6 - will deal with a subject the world has forgotten about. That subject is SOUND money. The only way out of the debt morass into which the world began to sink in 2007 is a return to SOUND money. If the US does not do it, some other nation or nations will. In 2008, Gold is poised to BEGIN to reflect the inflation of the last three decades. And that means levels for Gold above the 1980 highs in US Dollar terms. How far above? That depends on how long it takes for monetary sanity to raise its long suppressed head. The longer it takes, the higher Gold will go.
Please note that as of Friday, December 28, 2007, Gold hit bull market highs in all four currencies in the table below. And with the Euro falling significantly against the $US on December 31, Gold in Euros set a new bull market high to end the year on December 31.
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