Posted: 21 May 2014 02:34 PM PDT

We know:

The US national debt has been increasing exponentially since 1913.

Prices for stocks, gold, crude oil, and almost everything else have increased similarly.

Global monetary systems depend upon continued expansion of credit and debt. Expect more credit and debt.

DATA: I took monthly closing prices for crude oil, gold, soybeans, silver, and the S&P 500 index and averaged them to create annual prices. The following graph shows 20 years of those prices, all indexed back to 1994 = 1.0. They increased by about a factor of 4 with crude oil prices increasing the most over this 20 year period.

average gold prices on 20 years

The next graph shows US national debt, crude oil, gold, and the S&P 500 index. National debt is a good proxy for the supply of currency and credit, and as debt inevitably increases, so do prices.

average price of gold, crude oil, S&P 500 and national debt over 20 years

Conclusion: Expect more debt and higher prices for stocks, energy, gold and silver. Expect more volatility as prices adjust for the latest shock, insolvency, war, and announcement from the Federal Reserve or supposedly important politician. The powers-that-be know the game is "Inflate or Die" and while they might not be all-powerful, a century of increasing prices indicates they will probably get what they want.

From Bill Bonner:

"Credit expansion began when Ike Eisenhower was still on the golf course. It has been expanding ever since, with more than 50 times as much today as back then…"

Bonner quoting Richard Duncan: "The Fed knows credit must expand, or we have a depression. And today, debt levels are so high that a depression would be catastrophic. The disaster would be worldwide, not just in the US. And people would die…"

"That's why the Fed will not allow a credit contraction."

It will not be a smooth ride. Accidents happen. Protect the purchasing power of a portion of your assets and savings by converting to real money – gold and silver.

GE Christenson | The Deviant Investor

Gwyde's corner: Relative strength of gold prices

Posted: 14 May 2014 03:21 AM PDT

There are plenty of technical indicators working very well for a short time frames: RSI, MACD ...
However when it comes to determining the relative strength over the long haul of the gold price, or that of any other precious metal or commodity, it is more useful to compare to the average of the preceding period. In the following article, a simple moving average over 250 days is chosen, since that generally coincides with the number of trading days in a year.
A moving average over one year filters all hazardous day-to-day variations and retains only a rough trend. This trend of course is delayed. Whenever gold rallies, it runs ahead of its yearly moving average. As the gold price plunges, it may drop below its 250 dma. As a plunge evolves to a bear market, the gold price may stay below its 250 dma for a more extended period.

Dividing the present gold price by the yearly moving average therefore yields a relative strength curve that averages close to one or 100% over the very long haul. The higher above 100% the more powerful a gold rally is and the deeper below 100%, the more subdued gold prices are during a bear market. The first graph pictures the gold price, its yearly moving average and the relative strength curve since 2008. Clicking on any of the graphs will show their true size and detail.

Gold price (blue) and its 250 days moving average (red) on the left axis. Relative gold strength in % (green) on the right axis. Data from 2008 to the present day.

Gold price (blue) and its 250 days moving average (red) on the left axis. Relative gold strength in % (green) on the right axis. All 21st century data till the present day

Previous graph started almost in the middle, drawing our focus to the first half. The relative strength curve starts off the new millenium with a peak. Barely noticeable on the gold graph, yet a $30 move at $300 gold is equivalent to a $130 jump at $1300 gold. This stunning 10% rally in February 2000 followed a report which made clear the detrimental influence of generalized hedging by producers and of gold leasing by central banks on the gold price trend. That single day rally didn't however break the back of the gold bear market yet: nearly all of the gains vaporized during the following months. The relative strength curve again slides below 100% later in 2000, to emerge only by mid 2001: the first sign of what will turn out to be a major gold bull run. Peaks in the relative strength remain subdued at about 1.15, as corrections temporise the rise of the gold price. By mid 2005 the gold bull run accelerates with the relative strength peaking in spring 2006 at a stunning 145%. During the following years, that value will never be equalled anymore. The March 2008 peak indeed halts at 135.7% and the 2011 summer rally halts at 130%, though gold puts down its all time high at that moment.

Back to the 20th century

First observation is the scale of the relative strength curve now extending to 275%: when gold peaked at $850 on Jan 21 of 1980, the relative strength peaked at 259%. This kind of fever would never be repeated since. As gold sells off its 1980 peak, relative strength eventually bottoms below 75%, both in 1981 and early in 1982. The autumn 1982 rally brings gold back from its post 1980 low at below $300 on June 21, 1982 to over $500 by mid February 1983. Thre relative strength curve then peaks at a more common 130.8% on Feb 16 of 1983. This second best rally during the last two decades of the 20th century puts the exceptional nature of the 1980 gold fever into perspective.
By 1985 the high interest rate policy of the FED under Paul Volcker had propelled the USD to the strongest currency. This had become a problem on its own, both for the US, where the bulk of manufacturing industry had become uncompetitive and for the rest of the world, where the high dollar exchange rate implied higher costs for most commodities, making it difficult to keep a lid on inflation. From an international perspective, gold at $300 therefore has a different meaning in 1985 than it has in late nineties. As the USD comes off its high, the gold price recovers rallying towards $500 in 1988.

Gold price (blue) and its 250 days moving average (red) on the left axis. Relative gold strength in % (green) on the right axis. Data run from 1979 till the beginning of 1991

The last graph extends the 1980's decade to the beginning of the 21st century. The gold price had been sliding in the early 1990's, with only a short and weak rally as Irak invaded Kuweit and the subsequent first gulf war. In 1993 gold recovers with its price moving sideways close to $400 for over three years. (Miners and exploreres did remarkably well during those years).

Gold price (blue) and its 250 days moving average (red) on the left axis. Relative gold strength in % (green) on the right axis. Data run from 1979 till the beginning of 2001

During 1997 gold sells off, initially weakening below $350, but by December 1997 eventually dipping below $300. This implies the start of a devastating gold and gold mining bear market extending into the first year of the 21st century. From July 1996 till mid September 1999, the relative strength curve remains below 100%. At best relative strength is flirting with the 100% threshold some weeks during 1998 without ever breaking out. In December 1997, relative strength dipped below 85%. In July 1999, it dipped below 90% once more. Towards the end of the 20th century and extending into 2000 a few false starts of a next gold bull market make relative strength fluctuate more wildly.

Discussion

Rather than identical to 100%, the average value of the relative strength ought to reflect the secular uptrend of gold, mainly due to currency debasement and the resulting inflation. (The two are not always in sync as the last few years have demonstrated.) Going back to Jan 2 of 1973 with gold at $65.1 and the more familiar $1302 while drafting this article, gold has risen twentifold. This is equivalent to an annual rise of the gold price of 7.5%. If gold were to rise at this continuous pace, the gold price would constantly remain at 103.75% of its 250 days moving average. This is the secular average value, which perhaps is a better baseline scenario going forward than claiming that relative strength ought to average 100% and that all excess values during rallies will be paid for by gold falling below its 250 dma for extended periods. The 'baseline scenario' is affected relatively little by the exact choice for the current gold price. With gold at $2000, the annual rise of the gold price would have accelerated to 8.6%, with gold at $1000 it would be retarded to 6.8%. Extending the timeline back a decade to 1963 (when dollar currency was 0.900 fine silver and the $35 peg of gold was not yet questioned too much) doesn't alter anything substantial to the baseline scenario either. It even narrows the resulting interval between the 'optimistic' $2000 scenario for the gold price and the bearish $1000 perspective.

Conclusions

Studying relative strength back to 1979 has learnt us how exceptional the January 1980 rally has been. Relative valuation reached a value (259%) never seen before nor since. The second highest value was reached on Feb 26 of 1974 with a relative valuation at 162%. Not surprisingly that coincides with the first crude price crisis.
Any comparison you may find using that January 1980 $850/oz peak value as a reference is therefore highly tilted.
Typically relative valuation in a gold bull market and during a major rally does not rise above 150%; the two single exceptions are listed above. The August 2011 rally bringing gold to its last all-time-high concluded at a relative valuation of 130%. In this perspective it was one of the more 'moderate' of the gold bull rallies.

Gold Price History Graphs | Gold and Silver Investing Publication

Posted: 12 May 2014 10:49 AM PDT

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20 Years of Inflation in Debt and Prices | Gold Silver Worlds

20 Years of Inflation in Debt and <b>Prices</b> | <b>Gold</b> Silver Worlds

Back to the 20th century

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