GOLD

[wren]

Hmm, maybe my memory was a bit off... I remember beer going through £1 a pint, but I guess that was later in the 1980s. You get the basic idea though. No real reason to expect gold price to rise by the level of the money supply growth rather than the level of general price inflation.

Yes but that's half what you suggested. Inflation was high, so it wasn't so many years before it hit £1.00, maybe '85 or '86 in my example pub.

 

But isn't general price inflation highly correlated with money supply? Of course, it can vary greatly for individual goods. In the long run gold does retain its purchasing power. Just look at how much oil an ounce of gold buys.

 

But since paper money ceased to be formally tied to gold, gold has had its ups and downs.

 

I agree with hotairmail that the $850 1980 peak applies only to a special and short-term situation.

 

When real interest rates get reasonably positive and stay that way for some months, that's one signal to get out of PMs.

 

They could kill this gold bull by raising interest rates sufficiently. But I see no sign yet.

 

(And they would kill much more if they try it.)

[cgnao]

I don't think the current price is as artificial as £35 was in 1971.

 

You are quite right. It's worse. Far worse. There were no gold derivatives then. Note also the amounts below are estimates from 2001.

 

http://www.gold-eagle.com/editorials_01/judge052101.html

 

Markets that have been artificially capped, catapult dramatically when market suppression ends. In the 12 years from 1968 to the peak of the bull market, the price of gold had rallied by 2300%. It has been said that "the greater and the longer the manipulation, the greater the eventual price is going be". Today, with far greater amounts of gold involved in the price suppression scheme (10,000 – 15,000 ton versus 3,000 ton in the gold pool era), over a longer period of time, and with far more at stake, it can only be concluded that the eventual price of gold may well run much higher than the 2300% of the late 60's and 70's. At today's prices, a similar move of just 2300% would price gold at a staggering $6,400 per oz.

 

[wren]

Though it had been artificially held at $35 for decades, the 1970s saw massive general inflation, and $850 was a brief spike.

And was it not held artificially low again up to the beginning of this bull?

 

Has there not been high monetary inflation for years which went into asset inflation rather than everyday products?

Some of those may apply now, though I don't think the current price is as artificial as £35 was in 1971.

The current price is definitely not so artificial as $35 back then. We're half way through this bull (IMO) not at the beginning (sub $300 was when it was really cheap).

 

They could kill it by raising interest rates sufficiently to provide some respectable real return on cash. But dare they?

 

All the same, thanks for being our resident gold sceptic.

[G0ldfinger]

... By the way, does anybody have reliable figures for average full-time salaries in 1980? U.S. or U.K would be good.

No, but page 2 of this document here shows a UK wage index in gold. The first page is the actual index.

http://gold.approximity.com/UK_wages_manuf...g_since1963.pdf

[G0ldfinger]

Though it had been artificially held at $35 for decades, the 1970s saw massive general inflation, and $850 was a brief spike.

 

Some of those may apply now, though I don't think the current price is as artificial as £35 was in 1971.

I beg to differ, and I think the chart (EDIT: pp 10/11) linked below can be used to justify this. The PoG in comparison with $-M3 looks as suppressed today as it did in 1971. Given that Fed/central bank gold holdings have not increased since then, but dropped instead (inofficially), the opposite is more likely, i.e. the price is more artificial today.

 

http://gold.approximity.com/M3_gold_commodities.pdf

 

EDIT: Only just saw c-jay has commented on it as well. I guess we agree here as usual. EDIT: And my argument didn't even have to use derivatives. Put them on top of it, and you know what we are up against.

You are quite right. It's worse. Far worse. There were no gold derivatives then. Note also the amounts below are estimates from 2001.

...

[wren]

http://www.gold-eagle.com/editorials_01/judge052101.html

The history is always fascinating. And they would like people to believe that gold is not important.

 

No, but page 2 of this document here shows a UK wage index in gold. The first page is the actual index.

http://gold.approximity.com/UK_wages_manuf...g_since1963.pdf

Great, thanks. I forgot about that file.

 

Do you plan to keep this data up to date?

[Catflap]

By the way, does anybody have reliable figures for average full-time salaries in 1980? U.S. or U.K would be good.

 

For 1980, mean gross weekly earnings for adult full-time employees in Great Britain were £110.20 which is £5,730 a year - from the ONS data I have.

[bitbigt]

However, the correlation with the dollar is still very stong and from a technical perspective, this is what is holding gold back. The euro/dollar is right at the bottom of it's trading range at the moment, it'll be interesting to see where it goes from here.

Excellent charts, thanks!

Do you have the raw data from these to determine the correlation coefficient between the two?

[Magpie]

Yes but that's half what you suggested. Inflation was high, so it wasn't so many years before it hit £1.00, maybe '85 or '86 in my example pub.

 

But isn't general price inflation highly correlated with money supply? Of course, it can vary greatly for individual goods. In the long run gold does retain its purchasing power. Just look at how much oil an ounce of gold buys.

 

Sounds about right.

 

I think global money supply is a slightly more complicated issue than a single economy's money supply. There is a reason for money supply to increase when an ecnomy grows significantly, and that may be part of the reason for the higher global money supply growth.

 

I think as a rule of thumb, you'd expect the relation between money supply and inflation within an economy to revert to mean, though you might need to make some allowance for genuine economic growth and population growth, both of which can allow money supply to increase by more than inflation.

 

[Magpie]

I beg to differ, and I think the chart (EDIT: pp 10/11) linked below can be used to justify this. The PoG in comparison with $-M3 looks as suppressed today as it did in 1971. Given that Fed/central bank gold holdings have not increased since then, but dropped instead (inofficially), the opposite is more likely, i.e. the price is more artificial today.

 

Hmm, maybe and that graph does make it look like there is plenty of room on the upside. But like many graphs it is riddled with problems. Someone has chosen how to map M3 against POG and their assumptions are fairly clear*. Also, it's very hard to compare the 1971 period to today given the parabolic curve - it still looks like a bigger gap in 1971 even on that graph to me, but I'd need to see the raw figures to see how else they could be presented.

 

* For instance why set the base at 1960 rather than earlier, which would have shown the 1970 price as being further below par. Also if you shift the whole POG curve up a bit, you'd get the result that the 1980 peak was further over the mean, and we would now look closer to par. You can draw these graphs a lot of different ways.

[Magpie]

You are quite right. It's worse. Far worse. There were no gold derivatives then. Note also the amounts below are estimates from 2001.

 

http://www.gold-eagle.com/editorials_01/judge052101.html

 

Markets that have been artificially capped, catapult dramatically when market suppression ends.

 

Not convinced, sorry. In 1971 the price had been held at 35 bucks for forty years because of the monetary system. The price exploded after that cap was removed. Now there is probably some market manipulation, but I refuse to believe that the price has been held artificially low for 28 years by market manipulation. No-one has that much power. So at various points over the last two and a half decades Ockhams Razor would suggest the market has set the price, not the evil cartel, and it has set it at levels between $300 and the recent $1000+ peak.

 

I still think it will go higher again, I'm only arguing with some of the wilder predictions of the top.

[CharlieSays]

Picked up my first gold coin today off ebay, couple of questions, when can i eat it?

 

But while trying to find reasons to make myself happier about the PPT 15% attack on gold recently i thought how the 20% Oil reduction would have on the margins on Gold Juniors. Say around a 600$ production cost (seem to remember that from one of CC interviews)

 

Previous 600$/ ounce production cost @980$/ounce market val => 380$/ounce margin

Now 480$/Ounce production cost @880$/ounce market val => 400$/ounce margin

 

So Im up, sort of, pity my juniors are mainly standing around a hole still.

 

 

[kernull]

http://www.theaureport.com/pub/na/1524

dubai reports 227% increase in contracts in july, this must be money flowing out of the US into dubai exchange. i think they listened to jim puplava

 

BTW, anyone trading at dubai? can you recomend me a broker?

 

 

[wren]

For 1980, mean gross weekly earnings for adult full-time employees in Great Britain were £110.20 which is £5,730 a year - from the ONS data I have.

Great, thanks. Now, I just need to check the Sterling price of gold in 1980.

 

I always thought I was underpaid as a Saturday boy, getting £0.75 an hour (some school kids worked stacking shelves for Safeways of a Sunday getting, like, £1.10 an hour).

 

Still, I worked in a small ironmonger's and women kept coming in asking for a long screw.

 

I asked the manager for a pay rise and when I didn't get it I resigned. Felt great.

 

[wren]

I'm not given to posting articles from gold bug sites but this one concerning the Indian economy caught my attention.

http://www.gold-eagle.com/editorials_08/kumar080508.html

A couple of snippets:

In fact the weakness has been growing by leaps and bounds during past two years. The rise of crude oil price has eaten the Indian economy hollow and has in fact pushed the country back many notches on its financial path. During past two years the cost of crude imports has gone up from $40 billion to approx. $100 billion - an unaffordable luxury for a poor nation like India. This escalation in the energy bill itself amounts to about 6.5% of the country's GDP. (This percentage is set to rise, given the fact that the GDP is declining and the crude consumption is rising.) The situation is laughable; a country whose total exports amounted to $155 billion last year is likely to spend over $100-120 billion on the import of one single commodity. If this parameter was to be the sole criteria of judgment, India will emerge as the number one importer of crude oil in the world, and would give more teeth to those who blame India and China for the rise in the price of crude.

 

Worse, the country is not passing on this rise in the crude oil to the consumers; they are being shielded because of vote bank politics. (While the Indian crude basket has risen by 181 percent since April 2004, the retail prices of petrol have gone up just 29 percent until the end of year 2007.) In other words, the government treasury goes on taking it on its chin while the consumers are blessedly unaware about the rising prices. As a result while on one hand the consumption continues to grow unabated, on the other the country's finances continue to take a hit below the belt. The balance sheet in fact is already in the red due to the losses this country has taken on account of fuel subsidies, and even if the crude price was to fall to a mere $100/barrel with immediate effect, Indian economy would not be able to recover from the wounds it has already received.

 

<snip>

 

In fact buying gold at current prices is the only course left for Indian investors to salvage their stock market losses. However they are unlikely to act it out. The ceaseless pushing of stocks and paper assets during past two decades have clouded most Indian investors' psyche to a level where they don't even consider gold as an instrument of investment. They think of it as a soft metal good enough only for hammering out a nose ring or a bracelet. This is the reason why the gold ETFs have failed in India, even as they are a roaring success in the industrialized world.

 

The sum and substance: the Indian demand for the noble metal is unlikely to pick up from now on. Given the condition of the Indian economy, I would not be surprised that Indian imports soon - and it can be pretty soon - fall to about 500 tonnes from the current about 700-800 tonnes per year. This may worry some gold mining industry captains and some sworn gold bugs, but honestly they should not be gloomy. There are many other factors out there to propel GOLD: God's Own Currency.

IMO India is not an essential driver of the gold price in current global financial circumstances, but an interesting article nevertheless from somebody, presumably, with a close knowldge of India.

[Steve Netwriter]

but I refuse to believe that the price has been held artificially low for 28 years by market manipulation

 

Why ?

 

[romans holiday]

And why is all this news, here of all places? Ten minutes with Google.....

Haven't you heard of peak gold?

 

I can be patronizing also.

[G0ldfinger]

Waaaaaah! A Silver Sammy Sighting (SSS) has ocurred!

 

Back up the truck. Load the boat. Fill your boots. The bottom is in!

 

No kidding.

 

http://goldismoney.info/forums/showpost.ph...mp;postcount=28

[romans holiday]

I think the only time it makes sense to compare the price level of gold with its previous peak is when similar circumstances occur. i.e. when there is a repudiation or even a partial repudiation of the $ and gold assumes its money role. Until enough people look at it that way, the price will simply be largely based on its gold use or commodity role.

 

Of course, if you think the $ is on its last legs as successive waves of default occur in the US housing market requiring wholesale bailout of the banking, mortgage, investment, insurance and housing industries (at the same time as dealing with a general recession) - then gold could be a good substitute for $.

 

Yes, which brings to mind what they say about gold being the anti-dollar. People have to doubt fiat first before they can believe in gold. This psychology will be central to the gold bull in my mind.

[G0ldfinger]

Gold versus M3. Not exactly expensive, that gold.

 

[ologhai]

It looks as if we are going to test $850, any thoughts? Any predictions lower than this?

 

I don't think it will drop as far as $850.

 

I'm obviously getting brave now. If I keep this up, I might even start believing what I'm saying!

[wrongmove]

Haven't you heard of peak gold?

 

I can be patronizing also.

 

I have heard of it, but I don't believe it. Gold is quite evenly distributed in the Earth's crust. We mined out the "nuggets" a long time ago. Now we just shift huge amounts of rock - typically several tons to produce 1oz of gold.

 

As the price increases, more dilute deposits become economical. In general, more dilute deposits are far more widespread that concentrated ones, so each time the price rises, much more gold becomes minable.

 

 

Compare with peak oil. We seem to have peaked in oil, but only for light, sweet crude. We haven't even started on the really low grade stuff yet. But the price of oil has shot up, so even oil shales and oil sands are now being exploited. You cannot do this at $30 a barrel, but at $130, it is profitable. Gold is the same. (And the environmental implications - destruction of environment, massive energy consumption, nasty chemicals used to extract Au - are pretty horrendous)

 

So even today, the producers are inflating the gold stock at 2% YoY. And according to cg's graph this seems to be increasing again after a few years of decline. But worse that that, a small handful of arbitrary countries control this supply. You wouldn't want to be using gold in that situation, unless you could mine it. One years output, carefully aimed, could buy your country. No-one would know if the producers were telling the truth about production levels, or just storing excess for a "smah and grab".

 

 

I can see that gold made good money, long, long ago (when the inflation of the supply was pretty much zero due to lack of mining technology - it took the whole of history up to 1848 to mine the first 10%). But the history of fiat is almost as long, going back to ancient Babylon. And if you have FRB, then gold is just as bad as what we have now, i.e. you can expand the money supply indefinitely by simply changing the reserve requirement. But the fact that it can be inflated, and controlled by so few, makes it a useless form of money in the 21st century, in my opinion.

 

 

But good luck with you punt, all the same. I don't see this has much implications for that. Even I would have a little bit if I had any wealth worth "protecting".

 

 

 

[hotairmail]

Yes, which brings to mind what they say about gold being the anti-dollar. People have to doubt fiat first before they can believe in gold. This psychology will be central to the gold bull in my mind.

 

 

I would add that I think the run up in the gold price we have seen is down to it 'commoditiness'. i.e. its perception as an inflation hedge, a protector of wealth - but no different to other commodities at this stage. However, I do believe this is a necessary first stage if it is to be followed by a repudiation (or partial repudiation) of the $ - indeed this will be a process where it will be difficult to discern when it is one thing or another - and will only become clear when it has happened i.e. people finally don't want to accept your dollars any more.

 

EDIT: but it also assumes that people will choose gold instead of other forms of exchange - such as the Euro say. Such a decision may be based on confidence, ease of use, availability etc.

[Magpie]

Why ?

 

Simply too paranoid for me. It's hard to manipulate a market in short bursts but of course it can be done. But over long periods it would require constant action, almost impossible to achieve.

 

Also you need to think about the options of the manipulators. Whatever they were trying to achieve could almost certainly also have been achieved by allowing gold to grow steadily over time, but keeping a lid on it, so why keep it hugely below its natural rate at a level that would require constant intervention? They would be idiots if they had chosen that option, yet we are asked to believe they are evil geniuses.

 

I'd suggest the free market set the rate for most of that period.

[marmite]

Simply too paranoid for me. It's hard to manipulate a market in short bursts but of course it can be done. But over long periods it would require constant action, almost impossible to achieve.

 

Also you need to think about the options of the manipulators. Whatever they were trying to achieve could almost certainly also have been achieved by allowing gold to grow steadily over time, but keeping a lid on it, so why keep it hugely below its natural rate at a level that would require constant intervention? They would be idiots if they had chosen that option, yet we are asked to believe they are evil geniuses.

 

I'd suggest the free market set the rate for most of that period.

 

No one wants to beleive in the bogey man

 

But www.gata.org would disagree that he doesn't exist and they have some very strong arguements