GOLD

[Catflap]

According to these charts, gold was worth $200 in 1970, and $1,000 today, i.e. today it is 5 times more expensive.

 

But for some reason, it won't buy me 5 times more house. Given that the pound back then was $2.50, we should in fact get 8 times more house!

 

Indeed, I seem to get approx. the same amount of house.

 

How can this be????????????

 

Conclusion: flush the inflation adjusted chart down the toilet. The numbers are rigged. Gold is still massively undervalued.

 

I agree with you and wanted to do a post showing how much gold you could buy for a years average earnings in 1974 (before the big fall) compared with today.

 

 

In 1974 average earnings were £2,168/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1974 the average gold price was £67.83oz

 

So, in 1974 you got around 32oz of gold for a years average earnings in the UK

 

______

 

 

In 1975 average earnings were £2,808/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1975 the average gold price was £72.33oz

 

So, in 1975 you got around 39oz of gold for a years average earnings in the UK

 

______

 

 

In 1976 average earnings were £3,338/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1976 the average gold price was £69.33oz

 

So, in 1976 you got around 48oz of gold for a years average earnings in the UK

 

______

 

 

In 1977 average earnings were £3,650/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1977 the average gold price was £84.62oz

 

So, in 1977 you got around 43oz of gold for a years average earnings in the UK

 

______

 

 

In 1978 average earnings were £4,113/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1978 the average gold price was £100.61oz

 

So, in 1978 you got around 41oz of gold for a years average earnings in the UK

 

______

 

 

In 1979 average earnings were £4,659/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1979 the average gold price was £143.03oz

 

So, in 1979 you got around 33oz of gold for a years average earnings in the UK

 

______

 

 

In 1980 average earnings were £5,730/year (though that was a time of very high inflation and the average for the year don't forget)

 

In 1980 the average gold price was £263.70oz

 

So, in 1980 you got around 22oz of gold for a years average earnings in the UK

 

 

Let's also look at January 1980 in more detail where the high occurred - average earnings for January 1980 are likely to be around 1/2 the average of 1979 plus half the average of 1980, so let's assume them to be around £5,195 at this point.

 

The average gold price in January 1980 was £297.73 so at the January peak you could have got around 17.5oz for a years average earnings.

 

 

 

Now let's have a look at the situation today where the world population is bigger, more gold has been mined and more paper gold exists plus loads of other factors.....

 

In 2008 average earnings were £29,864/year

 

In 2008 the average gold price was £593.08oz

 

That means in 2008 you got around 50oz of gold for a years average earnings in the UK - incredible!

 

 

So gold does not look as expensive as it did in 1974 and 1975 - it's worth about the same in relation to peoples earnings as it was in 1976 when it had already had a significant correction. This might make me more bullish on gold going forward from here - I have to do a bit of gold bug bashing to see if the arguments stand up and we won't see a big correction (I consider myself a gold bug as well!). This is obviously a different era to the highly inflationary 70's, so maybe gold will just grind sideways and upwards to an eventual peak gradually getting more expensive but without a severe correction.

 

Catflap

[romans holiday]

Gold is not now cheap. I actually estimate it to be somewhat above its fair price - due to the fear and problems we've had globally these last 2 years. What is even more surprising is that its price didn't go to twice the levels we've seen, and that is something I put down to manipulation by the PPT. And they aint giving up without a fight!

The thing is, many buying gold are not so much concerned with the price as what it is priced in. The ground for currencies today is on shifting sand and accordingly to ask what a fair price is could become increasingly problematic. This question of price remains relevant for now but would become irrelevant if a currency's value quickly erodes. Then the only thing of relevance would be the price in a more stable currency or against real assets. You do not seem to be at all concerned about the likelihood of coming currency crises.

 

Of course, if you think economic growth has resumed and everything has returned to normal, you have a point. In that case, pack away all those economic books, sell all your metal, stop frequenting fringe economic forums, put your feet up and rejoin the masses. Difficult to convince yourself happy days are here again isn't it.

[romans holiday]

I hope gold is money and not a gamble and would be very happy if it manages to preserve my current spending power in the storm ahead.

 

History - few have made money with gold many have preserved their wealth through difficult times.

 

There is an excellent opportunity today to acquire wealth and avoid debt [free-hold property] by riding this gold bull market up. These opportunities do not come along often.

 

The logic is simple; swap your weakening currencies for strengthening gold. Wait and then buy property when prices have deflated.

[drbubb]

An invisible correction ?

 

Here is the etf for S&P500, measured in C$

 

It happened, but we didnt see it

 

By Biggest position now:

 

Holding C$ cash has been "far from boring" !

[azazel]

In 2008 average earnings were £29,864/year

 

In 2008 the average gold price was £593.08oz

 

That means in 2008 you got around 50oz of gold for a years average earnings in the UK - incredible!

 

 

So gold does not look as expensive as it did in 1974 and 1975 - it's worth about the same in relation to peoples earnings as it was in 1976 when it had already had a significant correction. This might make me more bullish on gold going forward from here - I have to do a bit of gold bug bashing to see if the arguments stand up and we won't see a big correction (I consider myself a gold bug as well!). This is obviously a different era to the highly inflationary 70's, so maybe gold will just grind sideways and upwards to an eventual peak gradually getting more expensive but without a severe correction.

 

Catflap

 

Nice post catflap, thankyou.

 

[GatheringStorm]

There is an excellent opportunity today to acquire wealth and avoid debt [free-hold property] by riding this gold bull market up. These opportunities do not come along often.

 

The logic is simple; swap your weakening currencies for strengthening gold. Wait and then buy property when prices have deflated.

 

I concur with this. Having missed the huge tech stock bubble and the housing bubble, missing a third easy money opportunity would be shear carelessness on my part.

 

As far as I can tell, precious metals and maybe commodities are presenting that chance. Unlike many on here and HPC I don't see the point of arguing why gold is overpriced. I think "trade what you see" is very good advice. If it's going up then I ought to be in it.

 

 

 

 

 

[jamesspeed]

lots of nice charts http://www.gold-eagle.com/editorials_08/bevan053009.html

[G0ldfinger]

...

So gold does not look as expensive as it did in 1974 and 1975 - it's worth about the same in relation to peoples earnings as it was in 1976 when it had already had a significant correction. This might make me more bullish on gold going forward from here - I have to do a bit of gold bug bashing to see if the arguments stand up and we won't see a big correction (I consider myself a gold bug as well!). This is obviously a different era to the highly inflationary 70's, so maybe gold will just grind sideways and upwards to an eventual peak gradually getting more expensive but without a severe correction.

 

Catflap

Thanks for this comparison. We should keep in mind that this bust/collapse is much worse than anything (financial) that happened in the 70s or 20s.

[Pixel8r]

lots of nice charts http://www.gold-eagle.com/editorials_08/bevan053009.html

Saving the best for last gold has now locked in an all time high monthly close. It's about time, and will attract major attention in June, likely moving gold above $1,000 on it's way to at least $1,200 before any meaningful correction.

 

Although the summers have been notoriously slow for the precious metals it looks like this year will be the exception. With the global economic crisis about to pick up steam again and Martin Armstrong's cycles works being very accurate and calling for falling markets and rising gold prices now, I think it will be more work than relaxing this year.

 

All indicators say go now and we are a mere $20 away from the $1,000 wall. This time, effectively being the third attempt at breaking the wall, should be able to knock through and possibly never return to a three digit print ever again.

[bitbigt]

...the situation today where the world population is bigger, more gold has been mined and more paper gold exists plus loads of other factors.....

 

In 2008 average earnings were £29,864/year

 

In 2008 the average gold price was £593.08oz

 

That means in 2008 you got around 50oz of gold for a years average earnings in the UK - incredible!

 

So gold does not look as expensive as it did in 1974 and 1975...

 

Very interesting analysis.

 

On a detailed point, we should note that a small number of people have had very high earnings these last few years. So average salaries might be misleading. Median earnings were 25k last year, putting us on 40oz rather than 50oz for a years earnings - much closer to the 1974 peak.

 

Additionally, we should remember that the gold standard had just been broken a short while before 1974, so the world was in the middle of a reactive gold rally at that time, which arguably overshot to the upside.

 

So overall, I still feel comfortable with my view that current gold price is a little above long term average.

 

But far more importantly, I suggest we focus on questions like

1. why did PoG go so high in 1980

2. is the PPT doing far more effective job now than its equivalent did then

3. what will happen to the economy and inflation in next decade

 

I suggest the answers are

- because of high inflation and an attempt to corner the silver market

- Yes, dramatically so! (gold should have hit USD 2000 already otherwise)

- price deflation for a few years before high (and not HYPER) inflation become a problem in the West

 

I think our differing views on these 3 points may explain our different investment strategies better than our guestimates of the relative price of gold

[bitbigt]

The thing is, many buying gold are not so much concerned with the price as what it is priced in. The ground for currencies today is on shifting sand and accordingly to ask what a fair price is could become increasingly problematic. This question of price remains relevant for now but would become irrelevant if a currency's value quickly erodes. Then the only thing of relevance would be the price in a more stable currency or against real assets. You do not seem to be at all concerned about the likelihood of coming currency crises.

 

Of course, if you think economic growth has resumed and everything has returned to normal, you have a point. In that case, pack away all those economic books, sell all your metal, stop frequenting fringe economic forums, put your feet up and rejoin the masses. Difficult to convince yourself happy days are here again isn't it.

Hi RomansH

 

Firstly: am I "concerned about the likelihood of coming currency crises"? Yes, but I see it unfolding far more slowly and intricately than simply a 'going Weimar in next 12 months' scenario.

 

I am fully aware that the economic system is extremely stressed as loads of bad debts are being paid off or defaulted, as national productivity/employment fall, and as government debts increase. If only the UK were suffering this way, Sterling would nose dive far further. But its a global problem, and so all fiat currencies are in an equal mess. Consequently, they'll all work together to save the fiat system, and supress the gold canary that would otherwise be announcing the problem. In the end, the debt load carried by especially UK and USA will cause those currencies to fall the most, but I do not think they'll absolutely and suddenly fail! This is not a hollywood disaster movie. Instead, I'm expecting high (not hyper) inflation quite a few years from now, unfolding slowly, after a period of deflation. ...with gold suppressed all the time.

 

Given the above, I certainly don't want to be in cash long term, but feel quite safe being so positioned just now whilst house hunting and whilst equities and gold could correct down significantly.

 

Secondly: do I "think economic growth has resumed and everything has returned to normal". Well hardly! And sarcasm doesn't suit you

 

 

 

[romans holiday]

Hi RomansH

 

Firstly: am I "concerned about the likelihood of coming currency crises"? Yes, but I see it unfolding far more slowly and intricately than simply a 'going Weimar in next 12 months' scenario.

I have made an attempt to answer this here. I also do not see Weimar but see certain currencies devalued by half possibly this year or the following.

http://www.greenenergyinvestors.com/index....st&p=110858

 

 

 

Secondly: do I "think economic growth has resumed and everything has returned to normal". Well hardly! And sarcasm doesn't suit you

Couldn't resist that one.

[wren]

Just as a reminder to anybody thinking of opening a GoldMoney account: you can get the first 6 months storage for free if you sign up at GM via this website.

 

Near the top of the page in the centre is an image saying "GoldMoney 6 months free storage". If you click on that to get to the GoldMoney website and open an account you will get the first 6 months storage for free.

 

I believe DrBubb gets a small commision for this, which helps pay for the hosting of this site.

 

This is a cross-post from the GoldMoney thread:

http://www.greenenergyinvestors.com/index.php?showtopic=5499

 

[Pixel8r]

But far more importantly, I suggest we focus on questions like

1. why did PoG go so high in 1980

2. is the PPT doing far more effective job now than its equivalent did then

3. what will happen to the economy and inflation in next decade

 

I suggest the answers are

- because of high inflation and an attempt to corner the silver market

- Yes, dramatically so! (gold should have hit USD 2000 already otherwise)

- price deflation for a few years before high (and not HYPER) inflation become a problem in the West

I believe we are in a much worse situation now than in 1980, so gold should go a lot higher. This is the worst financial crisis since the 1930's not the 1980's.

 

The PPT has not done a good job controlling the price of gold, they have just allowed china and others to get in cheap. They have not managed to sort anything out by their attempts, they have just delayed and escalated the inevitable. I think they now realise this and will not be trying so hard in the future.

 

The current situation as I see it, is that the US has started on the route of buying their own treasuries (QE), as they now have to, as no-one else wants them enough for the amounts they require to be sold. As we can see from the "Thrilla in Manila" article the situation is about to escalate. Do people think the US didn't know this was going to happen when they started to QE? I think they were very aware that they had started on a path which they couldn't then change direction on. Which was part of the reason for trying other methods before doing so.

 

So I guess the question is wether the US is going to increases the amount of QE or have another wave of asset deflation. Everything I have read about Ben Bernanke tells me that deflation is his worst nightmare and all that needs to be done to combat it is print more cash.

 

So I expect a doubling of the amount of bond buying to be announced over the next couple of weeks. Which should be about when gold next goes through $1000 which will give us the momentum to push through this time. on it's way to the $1200-$1300 range.

 

Even if I am wrong I would rather be in metals than cash or real estate. I see holding PM's being the best place for my money during these times of currency crisis and QE. PM's are my insurance and why would I want to sell it just as the government is running out of suckers to buy their debt and now having to buy it's own.

 

As Goldfinger was saying earlier, you have to be in it to win it. Camp #2 "This is the big one, back up the truck, you can never have enough gold!" all the way for me

 

In 2002, when the word "deflation" began appearing in the business news, Bernanke gave a speech about deflation. In that speech, he mentioned that the government in a fiat money system owns the physical means of creating money. Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. (He referred to a statement made by Milton Friedman about using a "helicopter drop" of money into the economy to fight deflation.) Bernanke's critics have since referred to him as "Helicopter Ben" or to his "helicopter printing press." In a footnote to his speech, Bernanke noted that "people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation."

 

[bitbigt]

I believe we are in a much worse situation now than in 1980, so gold should go a lot higher. This is the worst financial crisis since the 1930's not the 1980's.

 

The PPT has not done a good job controlling the price of gold, they have just allowed china and others to get in cheap. They have not managed to sort anything out by their attempts, they have just delayed and escalated the inevitable. I think they now realise this and will not be trying so hard in the future.

 

The current situation as I see it, is that the US has started on the route of buying their own treasuries (QE), as they now have to, as no-one else wants them enough for the amounts they require to be sold. As we can see from the "Thrilla in Manila" article the situation is about to escalate. Do people think the US didn't know this was going to happen when they started to QE? I think they were very aware that they had started on a path which they couldn't then change direction on. Which was part of the reason for trying other methods before doing so.

 

So I guess the question is wether the US is going to increases the amount of QE or have another wave of asset deflation. Everything I have read about Ben Bernanke tells me that deflation is his worst nightmare and all that needs to be done to combat it is print more cash.

 

So I expect a doubling of the amount of bond buying to be announced over the next couple of weeks. Which should be about when gold next goes through $1000 which will give us the momentum to push through this time. on it's way to the $1200-$1300 range.

 

Even if I am wrong I would rather be in metals than cash or real estate. I see holding PM's being the best place for my money during these times of currency crisis and QE. PM's are my insurance and why would I want to sell it just as the government is running out of suckers to buy their debt and now having to buy it's own.

 

As Goldfinger was saying earlier, you have to be in it to win it. Camp #2 "This is the big one, back up the truck, you can never have enough gold!" all the way for me

 

Seems we agree on 99% of things, other than

- how well the PPT have, can, and will suppress the PoG

- the timing at which Western currencies will weaken significantly, both due to, and causing, high inflation

 

Hence I'm not yet conviced that we're right now at the start of 'the big one'

[Catflap]

Very interesting analysis.

 

On a detailed point, we should note that a small number of people have had very high earnings these last few years. So average salaries might be misleading. Median earnings were 25k last year, putting us on 40oz rather than 50oz for a years earnings - much closer to the 1974 peak.

 

This is always the confusing bit as there are average salaries, average earnings and average incomes - all slightly different. The figures I have used come from the ONS and are full-time mean weekly earnings (employees on adult rates, whose pay was unaffected by absence). They are for men and women and include overtime, bonuses/commission and shift allowance - it doesn't include those who are self-employed and the figures are gross.

 

This is the figure that is most often quoted in relation to house prices I think when talking about the house price to earnings ratio - if you applied for a mortgage you would be stating your total earnings not your salary as that would be less for a lot of people.... this is how I understand it anyway, but the figures I quoted came from the ONS from 1970 to 2006. I've obtained the 2007 and 2008 figures from the ASHE surveys - see page 8 for the 2008 results below:

 

2008 Annual Survey of Hours and Earnings

 

 

Additionally, we should remember that the gold standard had just been broken a short while before 1974, so the world was in the middle of a reactive gold rally at that time, which arguably overshot to the upside.

 

I agree and the price discovery would have been difficult as there was no true history of gold value in relation to other assets outside of a gold standard. Inflation was so high back then as well and investors were switching out of houses/stockmarkets into gold in '73 and then out of gold into the stockmarket in early '75 and then back into gold in late '76 and houses in early '77. Must have been a nightmare for those holding large amounts of cash with raging inflation back then.

 

The only thing that concerns me about the current POG is where it is now in relation to it's inflation adjusted peak in January 1980 - it seems to me it can either go up more slowly to an eventual peak in something like 2014 or 2015 with no serious correction and no parabolic action or it would need to have a good 1 to 1.5 year correction to lower prices from where it would rise more steeply in a parabolic fashion (just like mid-to-late 70's).

 

Should we also expect the same amount of gold at the peak in relation to our earnings?..... is there more gold to go around (real and paper, because of etf's etc) which is why we are getting 50oz a year in 2008 compared to less in 1974 and 1975 despite the worse financial climate now.... or is it really worse with low inflation and banks now backed by governments?

[Pixel8r]

Prepare for fireworks over the next or two

 

 

 

[lupercal]

Prepare for fireworks over the next or two

 

 

 

IMO That pattern is fractal. It repeats in the first curve then the POG falls. What's to stop it happening again in the larger pattern.

[Pixel8r]

IMO That pattern is fractal. It repeats in the first curve then the POG falls. What's to stop it happening again in the larger pattern.

Inverse head and shoulders pattern, read the post below for an explanation.

 

http://www.greenenergyinvestors.com/index....st&p=108929

 

 

[sash777]

Inverse head and shoulders pattern, read the post below for an explanation.

 

http://www.greenenergyinvestors.com/index....st&p=108929

 

That's all fine and well but these are not normal times - we didn't even see a launch far beyond $1000 while all the banking fireworks were really kicking off. As such, in my humble opinion, we need to be wary of only seeing what we want to in charts like this.

[lupercal]

Inverse head and shoulders pattern, read the post below for an explanation.

 

http://www.greenenergyinvestors.com/index....st&p=108929

 

 

Thats a good link, I'd read that and skimmed over it. It does look like an inverse head and shoulders, but how important is the volume to confirm this? I'd be happier if that graph was showing greater volume on the peaks. How reliable is this indicator in gold.

 

 

There seems to be agreement to what a Inv H & S usually shows and it is a reversal.

 

 

The inverse head-and-shoulders pattern is the exact opposite of the head-and-shoulders

top, as it signals that the security is set to make an upward move. Often coming at the end

of a downtrend, the inverse head and shoulders is considered to be a reversal pattern, as

the security typically heads higher after the completion of the pattern.

 

 

On the subject of the head and shoulders pattern in gold :

a head a shoulders pattern usually signifies a reversal. A head and shoulders top, for example, might come at the end of a long uptrend.

Similarly an inverted h and s will come at the end of a long down trend.

agree that the Inverse Head and Shoulders usually comes at the end of a downtrend, but not always. I believe that when the formation happens it is very strong even in an uptrend.

 

Usually the reaction is the same as the depth of the head. In gold's case the head dropped to around $700, with the neckline being at $1000 (a nice big number). So I believe we will be on for a reaction to $1300 come the break out in mid June

 

Has anyone done any analysis on this pattern in the gold market or is this hearsay

 

[Pixel8r]

Thats a good link, I'd read that and skimmed over it. It does look like an inverse head and shoulders, but how important is the volume to confirm this? I'd be happier if that graph was showing greater volume on the peaks. How reliable is this indicator in gold.

 

Has anyone done any analysis on this pattern in the gold market or is this hearsay

I think the volume should come in as the pattern nears and crosses the neckline, which should be over the next week or two. Also related and of interest silver broke from a inverse H&S last week, see this post about it;

 

http://www.greenenergyinvestors.com/index....st&p=110869

 

The pattern has been mentioned by lots of analysts over the last month, here's a couple;

 

James Turk - http://goldmoney.com/en/commentary.html

Peter Brimelow- http://www.marketwatch.com/story/gold-on-v...storic-breakout

[bitbigt]

...There seems to be agreement to what a Inv H & S usually shows and it is a reversal....

I think the concerns raised about this happening after an uptrend rather than a downtrend are significant. Plus there's the question of the low volume.

 

But perhaps more worryingly, this recent rise in PoG to form the second shoulder is not due to a fundamnetal rise the PoG, but simply reflects a depreciation in the USD. Gold in virtually all other currencies shows no such shoulder.

 

A real pessimist might even argue that we've just had an ominous double top, and we're now on our way down - with that fall simply hesitating just now due to the current weakenning of the USD and the impact this has on the USD PoG. ...but who would dare suggest such a thing

[azazel]

A real pessimist might even argue that we've just had an ominous double top, and we're now on our way down - with that fall simply hesitating just now due to the current weakenning of the USD and the impact this has on the USD PoG. ...but who would dare suggest such a thing

 

Someone who sold his gold and was hoping for a low to get back in? That would make him more of an optimist

[FWIW]

I think people that are focusing on just the head and shoulder or double/triple top patterns, are not paying attention to the RSI osciliator indicator.

 

The RSI is >70% which is classed as 'overbought'; however nobody in their right mind would sell now. According to text book definitions, traders should only sell once RSI comes back under 70%. From just looking at this one indicator, I can tell you that gold will break through the 1000 resistance line.

 

I am looking at 1032.28 as another technical resistance level. This is a major fib retracement for me.

 

For me, if gold does not do what I think it 'should' do, then I will be very happy as the gold sales will be on! This is win-win time for us gold bulls!