gold/silver bull different from the '71 - '81 bull???

[NVMojo]

Lots of arguments going on with the price of gold being close to $600...

Gold Eagle Editorial:http://www.gold-eagle.com/editorials_05/barton041106.html

There is a factor that makes this gold/silver bull different from the '71 - '81 bull. The difference is very fundamental.

As the price of gold started to rise in the early '70's so gradually, very gradually just like now, people started to become aware of the rise and 'came aboard'. Gradually gold increased in value leading to ever more people investing in the market.

As more and more people started investing in the gold market they at the same time became more and more educated to the fact that the US$ was 'out of whack' and that this was why the price of gold was going up. Awareness increased of the fact that the fall in the US$ value and the rise in the gold price were not independent of each other. As more and more people became aware of the US$ weakness, so the cost of gold in US$ terms was driven ever upwards.

The price of gold has always been the financial equivalent of the canary in the coal-mine. It flags in no uncertain terms the health of any currency that it is measured in. At the moment the canary is singing badly out of tune with Ben Bernanke the new head of the Federal Reserve, who claims that the US economy is on sound footing and that it is full steam ahead.

more...

http://www.gold-eagle.com/editorials_05/barton041106.html

[xchrom]

1. sigh -- i don't know what to say --

other than if i knew then what i know now.

[Gman]

2. The biggest difference for Silver is

the Hunts aren't involved now as they were then.

Had a friend back then that lost his shirt because of this.

[The Magistrate]

3. This, Ma'am, Ignores The Real Difference

The price of gold was kept under strict control prior to that time, at a rate of $35 a troy ounce. This was well below the natural market rate that would have prevailed among industrial consumers otherwise. Thus that rise began from an artificially depressed price. Further, the prices of gold today and in the late seventies are not as comperable as the nominal figures would suggest. There has been a great deal of inflation in the last decades, and there was a tremendous bout of it in the late seventies and early eighties, such that a price of six hundred dollars today for a weight of gold is really equivalent to perhaps three hundred fifty or so dollars circa 1978.

[NVMojo]

7. you got it right, magistrate ...I live in gold mining country and

the artificial depression that is done to gold is common knowledge. So is the connection between the national economy and gold prices. It's been this way for years.

[sabbat hunter]

4. the biggest difference

is that back in the 71-81 gold bull inflation was in double digits. while energy prices are going up right now, so far it hasnt trickled down to other goods/services, ....YET!


it is more of a barometer on inflation worries than necessarily the overall state of the economy.

[Greyhound]

14. Just a note; while we aren't seeing the equivalent of the inflation

we had then, the real rate is about 9%. Add to this the real deficit of about $3.5 trillion p/yr which dwarfs anything we've ever seen before (Check out this truly terrifying article http://www.weedenco.com/welling/Downloads/2006/0804welling022106.pdf). We are the razor's edge and the smirking frat boy and his cabal are juggling live hand grenades.

[SlipperySlope]

5. You have to be careful reading what the "gold bugs" have to say.

They've been predicting the collapse of the world for at least 20 years now.

Here are some points to consider:

The 71-81 Bull was triggered by some unique circumstances. The U.S. had stopped backing its money with precious metals for the first time since it was founded. Double-digit inflation was real and tangible. Gold was ownable again for the first time since Roosevelt had confiscated it.

Basically, Gold and Silver were up because the economy sucked and people didn't know where else to put there money.

Today things are a little different, and the spike in Gold and Silver are being driven by different factors.

First, the debt of the United States may be troubling, but it is not at an all-time high relative to GDP:



General domestic inflation remains more of a fear than a reality.

However, all of the worlds major currencies (USD, YEN, EUR) have been flooding the global economy with liquidity (it isn't just us). Combine this with the fact that China and India are awakening giants with tremendous demand for industrial commodities, and this explains why we have been seeing the price of *all* commodities rise.

The average consumer is very sensitive to the price of oil, because they see it reflected immediately at the gas pump. But if you let your anger at oil prices cloud your vision, you might overlook the big picture. Look at what has happened to the price of Copper, Nickel, Lead, and so on over the past five years:



See the trend? It isn't just Gold and Silver, nor is it just Oil, it is ALL industrial commodities. They are going through the roof because the world economy is awash with money, growing like gangbusters, and bidding them up.

I personally think this trend is very bullish for continued growth in Gold and Silver, particularly Silver (I'm holding ~ 600 ounces). Last year, the industrial demand for Silver passed the capacity of the worlds mines to provide it. This means that Silver is being drawn out of above-ground stocks to supply industry.

Most of the Gold ever mined is still available in pure form. This is not true of Silver. most of the Silver the world has ever mined has been consumed by industrial uses. There is probably only 500 million ounces or so available above ground today.

Anyhow, I'm kind of rambling, but my point is that Gold and Silver aren't up because the economy is crumbling, they are up because demand is going through the roof. Of course, FEAR of the economy crumbling helps...

[NVMojo]

8. note that the slump in the late 90s in the gold prices put many small

gold producers out of business and that's why we are now dominated by only a few gold mining giants today and many of them want their hands on public lands in the west. The major one, Barrick, walked away from the last Bush administration public lands they barely paid $10,000. for and have made millions upon millions with ...it's about to happen again. Google Crescent Valley gold and you will see what I mean.

[German-Lefty]

11. Very Interesting!!!

Your chart of debt/GDP leads one to believe the debt isn't a problem. One thing that kind of bugs me is that in the short term GDP rises due to expansion of the money supply.

Inflation is partly up to the creditors and thier expectations, as long as you've got good creditors with faith in the US you can float a huge debt, FDR had a populist push to "buy war bonds" and regular citizens did. Today you've got a bunch of that debt owned by foriegners and I just can't see a patriotic push to buy your chunk of the debt especially if unpredictable inflation scares the crap out of people.

Another difference between now and 1948 is consummer debt. The US has got trillions in Mortgage debt.

I agree the reason you've got those industrial prices shooting up is the growth of the money supply. The way I see it the FED has allowed the money supply to grow to finance the debt. A good fraction of the new money in banks was used to buy up bonds, keeping their yields low. Of coarse the government can't just (print money, loan it to banks, and have the banks loan it back to the government) and just expect that to fly forever. Inflation will catch on.

[sailingaway]

6. Well, all i really know is tha t the 45k in gold coins i bought

last year is now worth 62k. something is going on, but im no expert. I hope to sell at the right time to make $$.

[Matariki]

9. just an intuition, but i'd say the right time is now

or soon.

nothing scientific in my statement though. (maybe something about gold ads on the radio makes me think it's hitting its peak.)

[Greyhound]

13. Bullion or Numismatic?

I wouldn't sell just yet, unless you're thinking of waiting for the next round of profit taking to expand your position. We've got quite a way to go as things are, and if something big happens (October maybe?) we could see it take off like never before.

[sendero]

10. Yes, it's different this time..

... and here's why. The inflation of the late 70s was nothing, NOTHING like the inflation that we are eventually going to have to experience because of the ridiculous Federal debt.

In the late 70s, Federal debt was low. Paul Volcker wrung the nascent inflation out of the economy with a series of austerity measures, and it worked. Once inflation was gone, gold/silver (I'm ignoring the Hunt debacle on purpose, it's not likely to repeat itself) and silver returned to more reasonable prices.

Here's how I see it: silver and gold are going up right now as a hedge agaist the value of the dollar, which only polyannas still think is in good shape. The fact that the Federal government has printed 2.5 TRILLION dollars in the last 5 years is real, and it means that every dollar in circulation is less valuable. Though the economy has been languishing those same 5 years, inflation is already very real, probably running 6-7%, way less than the official CPI because the Fed cannot afford the entitlement increases if they don't understate inflation.

I bought a bunch of silver. I wish I'd bought a bunch more. I'm still trying to decide if it's too late to keep buying. Probably not.

[Greyhound]

12. It is not nearly "too late" to get into the precious metals market.

If you look at the differences between the economy then and now, gold (I use it as a benchmark, the other industrial commodities will, more or less, see equivalent rises) will have to reach a price of ~$2,200 to match the $850 mark. The price will hit $1,000 this year or early next, barring another world shaking event (like military intervention in Iran, a successful attack on a major oil field in Saudi Arabia, etc.), which will set off the impending hyper-inflation.

Like the late 70's early 80's, we are seeing demand rapidly increase while production cannot expand, due to the losses detailed in another reply here. As I understand it, it takes 8 - 15 years to get a gold mine producing, so unless there is a drastic drop in demand, the prices will continue to rise for the foreseeable future (we saw Au go up $30 over the weekend). Since it looks like we are seeing another spike like in January, I am waiting for the next pull-back to load up.

I still like gold as silver is too volatile for my heart.