Gold Prices 1971 - 2014 in 3 Waves :: The Market Oracle :: Financial ...

Posted: 01 Aug 2014 07:15 PM PDT

Commodities / Gold and Silver 2014 Aug 02, 2014 - 04:15 AM GMT

The Big Picture

Ignore the hype regarding gold, bonds, booms and busts, hope and chains, "shock and awe," stock market crashes, "money honey" commentary, and ignore the politicians. Don't obsess over High-Frequency-Trading and market manipulation. Instead, focus on the big picture as shown in the following chart of monthly gold, which has been divided into 3 phases since 1971.

Phase 1: Gold rallied from about $42 in 1971 to over $800 in 1980, thanks to massive money printing, debts, deficits, wars, and a loss of confidence in the US dollar.

Phase 2: Gold prices crashed subsequent to the bubble of 1979-80, and then drifted lower for about 20 years. It double bottomed in 1999 and 2001.

Phase 3: Gold rallied off the 2001 low of about $255 to over $1,900 in August 2011. Since then it has corrected to under $1,200, and double bottomed in June and December 2013. Current price is about $1,300.

How Will Gold Prices Change in the next 3 - 5 Years?

Option 1: Gold prices will continue rising, erratically of course, within the green "megaphone" pattern shown above. In my opinion this option is the most likely unless we descend into a global deflationary depression and/or nuclear winter, which the politicians and bankers will do "whatever it takes" to avoid.

Option 2: Gold prices continue falling much like they did subsequent to the 1980 bubble high. I consider this option unlikely.

What Else Supports Option 1 - Higher Prices?

The rally into 2011 does not resemble the parabolic bubble blow-off into 1980. The drop in prices since 2011 looks like a correction, not a post-bubble crash. Gold was not in a bubble in 2011.
Interest rates today are practically zero, but in the 1980 crash era US rates were at all-time highs. Economic conditions are quite different.
Monetary policy today is extremely loose, but in 1980 era it was, relatively speaking, tight.
The stock market in 1980 had been declining or flat for over a decade, while the stock market of today has enjoyed over 5 years of practically continuous rally.
In 1980 confidence in the US dollar and the financial system was fragile, while today it seems (perhaps undeservedly) much stronger.
Technical indicators (see graph below) suggest that long-term gold prices have been bottoming during the past year. Note the other examples of "over-sold" conditions in gold prices.

What Else Supports Option 2 - Lower Prices?

Various self-serving forecasts from investment and bullion banks suggest lower prices - at least until they have sufficiently loaded up on future contracts and can massively profit from the rally ahead. I remain skeptical of such prognostications.
The price chart shows that gold has been falling since 2011. Some people believe it will continue falling for another 10 - 20 years. However, with ever increasing debt, bond monetization, food and energy inflation, massive Chinese and Russian purchases, and increasing political instability, lower prices appear to be an unlikely outcome.
The Fed and most other western central banks would like stable or lower gold prices, so their unbacked debt based paper currencies appear less weak. Maybe they can manufacture another decline in the gold prices such as during April - June 2013, but that also seems unlikely.

Conclusions

This is not 1979 or 1980 when political and economic conditions were drastically different. Perhaps a better analogy would be about 50 years ago (1964) when the Vietnam War was escalating, US citizens were angry and marching in the streets, a gallon of gasoline cost 25 cents, coffee in a restaurant cost ten cents, and a decent middle-class wage was $2.50 per hour. The subsequent 20 years were life-changing and financially difficult for many people. Consumer prices increased drastically, the purchasing power of savings was destroyed, and people lost confidence in government and the US dollar.

Gold prices will rally much higher in the next 5 years. Jim Sinclair's initial target of $3,500 seems very likely by 2016 - 2019. If the powers-that-be choose hyperinflation to deal with their massive debts, then much higher prices are "in play."

There are many other options. For example, if you don't trust or like gold, a bank will pay you 1% interest each and every year if you invest in a Certificate of Deposit.

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2014 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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Posted: 02 Aug 2014 09:20 AM PDT

What is a gold price chart and why is it so necessary? Could someone go ahead and invest in gold without having it? What is the big issue about this chart?

Essentially, it is considered very unwise to take any measures using gold without tracking the current gold prices graph. Generally what the graph achieves is that it details the price changes of gold over a particular period of time which naturally gives you a lot clearer picture of where values are headed and the most likely potential status of the precious metal. How else will you be able to tell when the perfect time to buy or sell is?

A typical gold graph will have the bar graph which represents time in the bottom and the price during various points in time on the left or right. The value of gold is spotted at different times and then a line is established connecting the various points hence enabling anybody to see at a glance the pattern and the general path that values are going to.

When you glance at the current prices and perhaps come up with a comparison with some weeks back or perhaps a year ago, you will definitely not have a very clear and comprehensive picture. How will you be capable of seeing the trends in the price adjustments?

If we're for instance to check out the gold rate chart for the interval between 2008 to 2012, the very first thing you may see is that the price of this metal is on a constant improvement. It means that 2008 would have been a great period to invest in a lot of gold. Even now a close look at the trends shows that it's still not far too late and all signals are that gold values could go on to rise.

A glance at the graph must of course lead you to conduct some research that could produce lots of different signals that point to values moving forward to increase steeply for several years ahead. One good reason is that the global financial trouble has caused many national banks to start acquiring gold in large quantities to help protect their states from the changing paper money, deflation and a volatile world economic industry.

People are also placing even more focus on gold in their investment portfolios. What all this implies is the demand for gold could continue to climb steeply for a long time and consequently, the values too are bound to continue pointing northwards.

Lots may be done by using a gold rate chart. It is possible to make use of statistics to scientifically anticipate the value of gold within the distant future. A gold price chart is very helpful if you're searching for the statistics that will help you generate such predictions. A chart is usually pretty thorough and can present the gold price for every troy ounce.

Gold Prices 1971 - 2014 in 3 Waves :: The Market Oracle :: Financial ...

<b>Gold Prices</b> 1971 - 2014 in 3 Waves :: The Market Oracle :: Financial <b>...</b>

The Big Picture

How Will Gold Prices Change in the next 3 - 5 Years?

What Else Supports Option 1 - Higher Prices?

What Else Supports Option 2 - Lower Prices?

Conclusions

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