Gold to Correct After Front Page Financial Times Article? Gold in 2011 Vs The 1970’s And 1979

Tyler Durden's picture

From GoldCore

Gold to Correct After Front Page Financial Times Article? Gold in 2011 Vs the 1970’s and 1979

Gold has fallen in most currencies today and is trading at USD 1,603, EUR 1,130, GBP 995 and CHF 1,315 per ounce. Gold is 0.3% higher in Swiss francs again today after the last two weeks of deepening turmoil saw gold rise in the Swiss franc.

Cross Currency Rates

While Asian equities were mixed, European indices have bounced and Eurozone debt markets have also received a bid as risk appetite is renewed. This is in glaring contrast to yesterday’s real nervousness and shows markets schizophrenic tendencies at the moment.

Gold in USD – 180 Days (Daily)

Many market participants are expecting a correction in gold at the psychological level of $1,600/oz.

This is quite possible given corrections often take place after reaching record round number highs. Also, corrections tend to happen when there is a lot of noise in the press and media.

Gold’s record high in all currencies is front page news in the Financial Times today which would make any contrarian nervous that the recent move is overdone. However, coverage remains very muted in much of the non specialist financial press – many of whom barely covered or did not even mention the new record gold highs.

The man or woman in the street, in Europe and much of the western world, remain blissfully unaware of gold’s rising price and unaware of gold’s importance as a store of wealth and an important diversification.

Gold is not overvalued – especially in the long term but even in the short term.

Gold at $1,603/oz is only 2.5% above the recent record nominal price seen on April 29th at $1,563.70/oz. Thus, gold has had a two month correction and consolidation prior to reaching the new nominal highs over $1,600/oz.

Gold’s Annual Appreciation in the 1970’s

Year to date in 2011, gold is only 13% higher in dollars, 7% in euros and 9.4% higher in sterling.

Therefore, it is quite possible that gold targets the next psychological level of $1,700/oz, prior to any meaningful correction.  Higher prices in euros and pounds are especially likely, prior to a correction.

It is worth remembering that in the 1970’s gold bull market, gold had annual appreciation of some 30% per annum and had moves of over 73% in 1973 and 66% in 1974 (see table above).

Gold only went parabolic in 1979 when it rose by over 140%.

The conditions today are worse than the 1970’s when the U.S. was a net creditor nation and not a net debtor nation – the largest debtor nation the world has ever seen.

‘Armageddon’ has been warned of by President Obama if the United States fails to raise its debt ceiling.

This may be hyperbole used in debt ceiling negotiations with obstinate Republicans but there are many banking analysts, economists and leading financial experts (the ones that predicted the crisis and the continuing crisis) who concur with the American President and are genuinely concerned of an economic meltdown.

We are a long way from gold mania yet and gold coverage in the non specialist financial press remains muted – despite the ‘perfect storm’ for rising gold prices.

More importantly, gold and silver bullion ownership among the population remains very low.

Gold in Swiss Francs – 10 Days (Tick)

As ever, investors would be better served buying gold and silver on the dips and dollar (euro, pound and Swiss franc) cost averaging into allocations.

Attempting to time corrections and speculate on short term moves is extremely difficult and should be avoided by retail investors and all but the most experienced traders.

NEWS

(Financial Times) -- Gold Beaches £1,000 Barrier - Investors head for havens in debt storm
http://www.ft.com/intl/cms/s/0/fb477bfe-b15e-11e0-9444-00144feab49a.html#axzz1SRVrabyK

(Reuters) -- Gold hovers below record, extends gains to 12th day
http://uk.reuters.com/article/2011/07/19/uk-markets-precious-idUKTRE76H0EU20110719

(Bloomberg) -- Europe Commodity Day Ahead: Gold May Extend Best Run in 31 Years
http://www.bloomberg.com/news/2011-07-19/europe-commodity-day-ahead-gold-may-extend-best-run-in-31-years.html

(Financial Times) -- India’s growing wealth bolsters gold demand
http://www.ft.com/intl/cms/s/0/bc62186c-b155-11e0-9444-00144feab49a.html#axzz1SRVrabyK

COMMENTARY

(The Telegraph) -- Gold bulls and bears clash as price hits new peak
http://blogs.telegraph.co.uk/finance/ianmcowie/100010874/gold-bulls-and-bears-clash-as-price-hits-new-peak/

(Irish Independent) - Declan Ganley -Tyranny of Mediocrity in Brussels Will March On - Unless Drastic Action Taken Immediately
http://www.independent.ie/business/irish/we-need-to-come-up-with-a-plan-b-for-the-euro-crisis-2811936.html

(King World News) -- London Trader - Potential for Major Short Covering in Gold
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/7/18_London_Trader_-_Potential_for_Major_Short_Covering_in_Gold.html

(The Market Oracle) -- Marc Faber on Gold, Silver, Deflation and the US Economy
http://www.marketoracle.co.uk/Article29321.html

(Zero Hedge) The Head Of The World's Biggest Hedge Fund Sees "Economic Collapse" Due To Money Printing By Early 2013
http://www.zerohedge.com/article/head-worlds-biggest-hedge-fund-sees-economic-collapse-due-money-printing-early-2013

(Uncommon Wisdom) -- Own Gold - The best asset class you can for these kinds of times - Larry Edelson
http://www.uncommonwisdomdaily.com/bernanke-out-of-bullets-heck-no-12482?FIELD9=2

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lubyanka's picture

It's still fear. Once greed takes over we will approach a correction

youngman's picture

I would not say its fear...its intelligent investing....look at the alternatives..

mess nonster's picture

I tend to agree. There is fear, and there is an intelligent appreciation of danger. The two are not the same. The man who quietly dons a parachute upon noticing a slight laboring to the rythm of the airplane's engine is not the same as the panic-stricken idiot who flings himself madly from the flaming wreckage.

When it becomes obvious that the trajectory is straight down, then gold will soar beyond 2000- in fact, the paper price for gold may be anything, since actual bits of the material may be impossible to obtain at any price, save that of real morsels of food, or a pop bottle full of gasoline. 

Dane Bramage's picture

Excellent observations.  Also - any "correction" valuated in a dying currency seems a bit of an academic exercise.  Were there "corrections" in Wiemar (Zimbabwe, any other failed fiats) gold pricing?  I think the proper definition of "correction" here is death throes.   Sure there will be starts and fits, changes in velocity but the end game for the subjective value of the USD$ (et. al. fiats) is a future epitaph.  Perhaps there is analyses of gold's purchasing power that would serve better?  Of course that will also fluctuate madly short-term as the normalcy bias gets smacked down.  Well, while I'm sure there are profits to made in the chaos.  I'm content to simply go long, long physical (& have been "all in" sine early 2000s).

toothpicker's picture

once greed takes over gold will go to 10 000/oz

Pladizow's picture

I personally think that a rally led by fear will be far stronger then one led by greed.

Fear is a stronger emotion then greed.

When the sheep finally wake up and see that their paper fiat is on fire there will be a mad dash to the exit, with only gold waiting on the other side with open arms.

Cognitive Dissonance's picture

I would argue that at greed's core or root there is fear.

DosZap's picture

IK,


Easy, of being left destitute, or without  what one has accumulated over a lifetime.Losing that is a very fear engendering, and prompts one to not only try and cover what they have managed to earn/save, but if possible put even a larger cushion between themselves and that which engenders fear.There is where  kicks in.


Every Trader/purchaser of metals/equities here, operates on the Principle of greed, and fear in some cases.

RockyRacoon's picture

Loved your work in The Man From UNCLE.

Bananamerican's picture

made an UNCLE clubhouse out of a frig box when i was 6...

bullionbaron's picture

Where to for the price of Gold/Silver? Short term they are due for a pull back/consolidation, but they will head higher... $1700 - $2000 could be on the cards by the end of the year:

http://www.bullionbaron.com/2011/07/gold-1600-silver-40-where-to-now.html

euphoria's picture

Good to see the bullion baron on zerohedge.

bullionbaron's picture

Thanks euphoria, daily reader, irregular poster :)

RockyRacoon's picture

I've been a bit irregular lately as well.   Nice to have company.

Hook Line and Sphincter's picture

Irregular?  

I think you know what I have to say about that.

Hook Line and Sphincter recommends castor oil.

Did I mention that I buy AU out of a combination of brotherly love, well placed fear, and a healthy lust for shiny objects? 

Smiddywesson's picture

Yes, but people will think you are a kook for saying so based on past price action.  But, past price action is increasingly becoming misleading. 

We just saw a $120 monthly rise.  This phenomenon is going to be a lot more common in the coming months so I believe your prediction of $1700 to $2000 may be a bit low.  It depends on economic and political matters more than anything to do with the price action of gold. 

Looking at GoldCore's chart for the gains made during the 70's, there was no indication of a top until the blow off year (1979).  This time around, everyone will see that it is the currency that is the problem when gold goes verticle, so spotting the top won't be too hard, because there is no top, just a bottom for the dollar (zero).

goldfish1's picture

We just saw a $120 monthly rise.

and reuters headlines today:

Gold eases from record highs, eyes euro summit

Gold prices eased a touch on Tuesday after earlier hitting record highs, as a rebound in assets seen as higher risk, such as shares and the euro, took some of the heat out of appetite for safe havens.

Sudden Debt's picture

any correction is good. It could even correct pretty badly to 1420$ in the comming months but after that it will swing back up.

But for silver I think they are running out of power to manipulate it much more. Maybe 1 or 2 margin increases but by then silver stocks will be sold out.

And who cares about short term corrections? This debt thing is here to stay for at least 5 to 10 years and most PM investors don't mind adding a year to the big payout day.

 

Smiddywesson's picture

Sudden Debt,

I don't think they can get it down to $1420.  Manipulation is reaching diminishing returns.

The people still holding PMs know the game now, and that has completely changed the game.  Are there any scardy cats left on the long side?

The harder they hit the price, the more power that is compressed into the spring.  Take July for example.  Does anyone think the manipulators of gold and silver are satisfied with the results?

mess nonster's picture

Right on. How many Greek bonds can I buy for an ounce of gold? Can I get my 38% yield paid in gold? If there was a true open market for Treasuries, (instead of the self-consumption going on now) what would the yield be? And can I get paid back in bullion?

The "debt thing" will be with us for more than 10 years. There will be no return to normal. Funny thought- when gold was money, by what did people reference its value?

 

 

RockyRacoon's picture

...when gold was money, by what did people reference its value?

Didn't think that one through did you?   How does one evaluate the "value" of a paper dollar?  By how many Big Macs one can buy, of course.   Same thing holds true for gold currency.   Back in the old West you could stable your horse with full feed and grooming, get a night in a nice room, have a big ole steak dinner, get the prettiest gal in the saloon to stay with you, and take a full bottle of good hootch -- all for a $20 gold piece, and get plenty of change from your coin.   So, that's about what you could get today for the same coin.   Well, maybe not the gal... she might have a missing tooth or two.

newstreet's picture

Don't you know talking about a correction in gold is blasphemy here?

 

 

Bay of Pigs's picture

Like holding from $1000 to $690 after Bear Stearns in 2008? A "legitimate correction"? Hardly. More like JPM up to its eyeballs in criminal activity, with the FED giving them cover to do it. 

Corrections are normal and good in any bull market. That said, gold would most likely be double or triple in price right now if not for blatant manipulation in the markets. This is all common knowledge these days thanks to sites like ZH. 

What was your point again?

RockyRacoon's picture

There is a difference between a gold-bug and an idiot.  They are not so mutually synonymous as you might think, although they do merge in a very few.

PeeTee's picture

A stupid question by a relatively uninitiated.

 

Suppose I have $5000 to spare on my savings account.

Should I buy gold, with the paper money basically doing down fast?

papaswamp's picture

$1500 silver $1500 Gold...$1000 in cash stashed at the house $1000 in long term storage food/water/seed. But that is me..it's your $$.

Note I'm not a financial advisor....just a survival nut..so take it what it's worth.

Sudden Debt's picture

Long term investment:

2500$ silver

1700$ gold

Short term investment:

500$ Beer

100$ DVD porn tapes

200$ kinky lingerie set for the misses

 

zuuuueri's picture

long term investment: guns and rice

medium term investment: apartment building

short term investment: is a scam

gold, is not an investment, it is money.

Sudden Debt's picture

So you're going to build apartments with 5K... how are you going to do that? With Chinese drywall?

You do that. I'll just watch my porn while I drink my beer while my misses gives me a lap-dance in her new lingerie.

 

You have fun with your rice also....

zuuuueri's picture

ah, silly me, that should teach me to not read a few posts up. You should be flattered that i looked at your comment first and ignored the few above it... 

with only 5k usd? ah, yeah. hrm. bit different.

 

mess nonster's picture

With 5K, my recipie is:

1500 in morgan silver culls

1000 in 30-30 carbine and ammo

2500 in trade school for traditional skill/tools for something useful to do, like blacksmithing, or herbalism.

Or, maybe I'd buy a horse. Or build a grist mill. The possibilities!

MsCreant's picture

4 ways of tackling this: 

#1. When the price has done this kind of thing, it really is healthy to wait for a pullback and then buy. Folks will tell you that you could be priced out forever (and you could) but so far the price seems to go down near the time of future's options expiration.

#2. There may come a time when gold just takes off like a bat out of hell and never turns back. Do you think this could be that time? If so, then just consider buying gold or silver as often as you can and don't worry the price at these levels because it will go much higher. Better to have it in your posession than to nickel and dime yourself in a time of crisis. They call it cost averaging. Over the years of accumulating, when I buy these days, I have such a deep (so called) profit margin, that when I do buy and it drops, I can look at my over all "profits" (no one profits unless you are beating the drop in fiat), see the cushion there, and not panic. Next month or three, sure enough, it goes up again and it even eats the commission.

#3. Some like silver better for a boat load of reasons I will not write about here, but it is out there on the net. Supply, traditional ratio of gold to silver price, new silver applicatins are some issues to google. At the $5,000 level, this may be a better use of your money (more upside potential, more volatile).

#4. There may be other things you need more. Are you ready for a disaster? Do you have enough food on hand to comfortably sit out a distribution crisis that could arise if there is a fuel shortage and trucks don't roll? An earthquake? Power outage? (Insert a likely disaster for your area). If you are not prepped, you may consider getting that taken care of, then a good gun, before gold. $5,000 right now will buy you some very solid preps.

Good luck.

PeeTee's picture

Thanks for the replies. This surely is something I can work with.

The kinky lingerie has already been taken care of.

 

gmrpeabody's picture

Unless you have a backup generator on your property, you may want to go with the paper version of porn.

papaswamp's picture

Much better than I said Ms

MsCreant's picture

Yours was shorter and got to the heart of matters quickly. Good advice.

FeralSerf's picture

If it's only $5,000 then it should be in currency with some ($1,000) spent on absolute necessities (e.g. prescriptions, basic food stuffs, tp, alcohol) and a cheap pistol or shotgun with some ammunition.  The rest, incl. some small bills, kept in a safe place.  The first sign of real trouble will be a run on cash in the banks.  This is the usual symptom of the merde getting close to the fan.  The more people that are refused cash, the more people that will want it.  Cash will be King, for a while.  Without it, no food or fuel!  Transport fuel and even bus tickets will be especially hard to get.  It'll be very difficult to travel to a safer place. 

Then the government will try to "fix the problem".  That's when PMs will start traveling on their parabola.

gillimus's picture

Suppose I have $5000 to spare 

 

If you want to hedge part of your cash savings with gold, that's a sound idea.  Make sure you have enough of a cash cushion to weather some hard times.  

 


caerus's picture

imo, if you would like to get the most oz for your $ wait a few days, gold just took a little over two months to break resistance at around 1550...when it broke, it appreciated (roughly) 8% since 7/5 until the highs yesterday.  This has been the longest streak of consecutive gains in (depending on the source) several decades.  If you're buying phys (bullion) and are holding for the long term, this may not be a big deal...however, some patience may enable you to buy some extra 1/10ths...hope this helps

papaswamp's picture

It will vacillate back and forth across the $1600 zone until the August 2 deadline in the US (assuming nothing major occurs elsewhere). After which it will make a slow march upward toward the $1700+ mark as it is realized the US will be forced to print since it cannot get it's financial house in order.

Smiddywesson's picture

Back and forth across $1600: Agreed

Slow march toward the $1700 mark: Disagreed

I think we will see more desperation on the part of the manipulators and hence, more opposite but unequal reactions higher like we have seen in July.  The pressure is building.

AladdinSaneGirl's picture

Aha! "...gold and silver bullion ownership among the population remains very low".

Quite, but i just read on Friday that Westfield Shopping Centre in London is the first to roll out a gold bar dispensing machine (make it easier for the public to buy physical). Planning to go down soon, take a look.

Sudden Debt's picture

Great ASG!

Can you also inform at what price they are selling the bullions?

And if it's only gold or also silver?

 

AladdinSaneGirl's picture

i will report back! Might not get down for few days tho. 

Sudden Debt's picture

still good :)

I'm pretty interested at what prices gold sells to the public.

 

MachoMan's picture

Can you imagine what someone would do when the machine eats his $1600 and doesn't spit out a coin?  He'll look like your avatar beating on the thing.

yabs's picture

correction maybe, but is NOWHERE near a bubble

I do  not know ANYONE that has physical gold or has even thought of it

they are still in the fiat/paper matrix

When they realize its only tangible assets that will survive then watch PMS explode as people wake up

Blano's picture

FYI, heads up, Cramer is saying buy.