Precious Metals To Replicate 1970s Performance On Institutional Allocations?

Tyler Durden's picture

From GoldCore

Precious Metals To Replicate 1970s Performance On Institutional Allocations?

Gold is trading at USD 1,629.65, EUR 1,179.88, GBP 1,032.54, JPY 125,131.05, AUD 1,587.21, CHF 1,456.78 and CNY 10,564.

Gold’s London AM fix this morning was USD 1,629.00, GBP 1,033.24 and EUR 1,180.17 per ounce. 

Yesterday’s AM fix was USD 1,651, GBP 1,045.14 and EUR 1,192.74 per ounce.

More institutional money likely to move into precious metals on outperformance

Gold has fallen marginally again in all major currencies. Concerns about the increasingly intractable nature of the Eurozone debt crisis and rumours of a Franco-German split regarding a solution, prior to the emergency debt summit this weekend, is leading to risk aversion in markets.

This is not helped by further concerns about the US economy after the Beige Book highlighted how close the US economy is to a double dip recession.

Further short term weakness in the gold market is possible and there appears to be a need for further consolidation.

However, global physical demand is very strong at these levels. Premiums in Asia have eased somewhat but remain healthy. 

Premiums on gold bars in Hong Kong and Singapore are at $2.00 and $2.50 respectively. Vietnamese premiums were $27.79 over spot gold of $1,662.20 and Shanghai gold closed at a premium of $10.15 to world gold of $1,652.05.

Cross Currency Table 

COT data in the US shows that speculative sentiment has fallen dramatically which is bullish from a contrarian perspective.

The Got Gold Report reports that silver futures market data is the most bullish it has been since 2003 - eight years ago. Silver was priced at about $4.40 per ounce then. 

Large commercial shorts have dramatically reduced their positions after the selloff in recent weeks suggesting that we are likely at or very close to silver bottoming.

While the figures for gold are not as dramatic they too show that speculative positions and sentiment has been reduced significantly.

Venezuela will repatriate some gold reserves held abroad before December 24th, Central Bank President Nelson Merentes told reporters today in Caracas according to Bloomberg.

“I can’t give you an exact date for security reasons,” Merentes said. Venezuela will keep an unspecified portion of its gold reserves in foreign institutions, he said.

In August, President Hugo Chavez ordered the central bank to repatriate $11 billion of gold reserves as a safeguard against volatility in financial markets. Venezuela held 211 tons of its 365 tons of gold reserves in US, European, Canadian and Swiss banks as of August.

The ‘Chart of the Day’ above shows how precious metals have outperformed other assets since 2000.

This outperformance is likely to lead to international institutional money being allocated to precious metals. A small degree of this has been seen already but institutions remain massively underweight precious metals with many having no allocations whatsoever and some having meager allocations to gold.

Given concerns about currencies and the risk of contagion and a global systemic crisis, this is very likely to change.

The small size of the gold and especially the silver market means that even a small increase in allocations to precious metals could result in dramatic price moves and large annual price gains as seen in the 1970s.

Gold rose 49.7% in 1972, 73.5% in 1973, 60.1% in 1974 and 140% in 1979.

Similar price moves are quite possible in the coming years given the very small size of the physical market vis-à-vis equity, bond & currency markets today.

Gold has risen by over 500% since 2000. In comparison, gold rose by 2,300% in just 9 years from 1971 to 1980.

For the latest news and commentary on financial markets and gold please follow us on Twitter. 

Silver is trading at $30.80/oz, €22.32/oz and £19.52/oz 

Platinum is trading at $1,489.50/oz, palladium at $599/oz and rhodium at $1,525/oz. 

Gold drops 1 percent as euro zone debt worries mount

Gold could test $1500 but then bounce to trade as high as $3400 - CitiFX

Silver Bear Market Seen Ending on Europe Crisis

Pamela Anderson Champions Palladium as Gold Prices Soar: Retail

(Wall Street Journal)
Gold: Here’s Why It Could Get to $2000 Soon

Ironic "Scariest Chart Ever" Redux - America Will Surpass 100% Debt To GDP On Halloween

Stephen Leeb - World Money Supply Tied to $10,000 Gold Bow

Gene Arensberg: Silver COT Most Bullish in Eight Years

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Fukushima Sam's picture

And apparently someone fed Chavez a strontium milkshake.

apberusdisvet's picture

The daily smackdown in PMs seems to be a last ditch desperation move before the Euro either implodes or is propped up by trillions in QE.  Given the global meltdown, the underlying fundamentals for PMs have not changed.  It is too soon to tell the effects of the CFTC actions, or the coming full implementation of the Pan Asian Gold Exchange; but I would imagine that the PM prices in one year will be at least 50-100% higher than those of today.

Smiddywesson's picture

It is too soon to tell the effects of the CFTC actions, or the coming full implementation of the Pan Asian Gold Exchange;

I don't expect much from the CFTC because they are part of the problem.

As for the Pan Asian Gold Exchange, all margin hikes are being coordinated on both sides of the world, so I don't expect the PAGE to bring down the show anytime soon.  China will have the abilitiy to do it, but won't use it just yet.

Au_Ag_CuPbCu's picture

Take margins to 100% and give me one last fire sale.

bernorange's picture

I've got a pretty strong feeling that the fire sale for physical is just about over.

FEDbuster's picture

"Gold is money, everything else is credit, bitchez"

JP Morgan

Saxxon's picture

The action in gold right now is like a road flare signaling approaching international deflation and depression.

Lobbelt's picture

Silver, bitchez.

Lmo Mutton's picture

No thanks. I want my Visa card. More convenient and accepted in more places than MasterCard. In fact it is "priceless".

RobotTrader's picture

After a spectacular blowoff top....

Gold is now crashing in virtually every currency.,GLD:FXY,GLD:...|D

The boys over at King World News now have their hands full on how to explain this action as "bullish".

Especially frustrating for gold bulls, is that consumer stocks like Whole Foods, Starbucks, and Abercrombie and Fitch have been by far, the best "safe havens" against the Eurozone crisis.


junkyardjack's picture

You forgot about the 144 day moving average support...

oddjob's picture

Don't forget your precious Netflix. I thought you'd be shopping for a new shirt after losing your last shirt on that stupid fucking stock.

Smiddywesson's picture

After near vertical pricing, I wouldn't call pulling back from a $1900 level to a range in the $1600-$1675 a "spectacular blowoff top."  What exactly kept it from continuing to deflate Robo?  How do you differentiate this from something known as "consolidation."  By your definition, every rest your safe haven stocks have taken along the way since March of 2009 has been a spectacular blowoff.

As for stocks being a safehaven, you are right to a degree.  They are a safehaven until they are not, much like russian roulette is an innocent diversion until it is not.  Confirmation bias leads to the cliff.

Hearst's picture

Robot Trader ecompasses the typical ignorant day trader mentality.  Long term perspective?  Forget about it!  Fortunes will be made with precious metals if you have the fortitute to ride all these manipulations out.  We know how small the PM (especially Silver market) is.  COT data is screaming bullish fundamentals.  Globe is falling apart.  Gold and Silver still looking better than ever.

akak's picture

The blinkered, ultra-short-term mentality constantly exhibited by RobotShitforbrains is not only typical of the ignorant day trader, but is now typical of the average dumb-downed American as well.  When the "long term" consists of barely managing to think about next week, you know your society is well and truly fucked.

RobotCrapulence, you deserve an eternity in bed with leo quislingasskiss ... in Hell.

MFL8240's picture

World is in chaos, Barack Obama is campaigning on your dime and no one says shit.  While this is occuring Gold is being thrown out by institutional investors in place of paper dollrs and bonds issued by the largest ponzi scheme in history.  This whole sytem is a disgrace.

SWRichmond's picture

It's 1974, bitches.  You guys don't have any fucking idea what's coming.

Mr. Lucky's picture

1974 will be a pin prick compared to whats comming. 

Hephasteus's picture

Actually it's 1974 and we move along the contiuum from gold standard to force standard to a point on the contiuum where we go from insidious manipulative careful thoughtful force with plenty of cover your ass to wreckless stupid force.

Gold and silver has the weirdest boner right now.

Saxxon's picture

Wow SWRich, clue us in.  You see inflation coming?  California is paying just under $4 per gallon.  I see $4 as the last bearable threshold and the price breaking out of that resistance will add people to the streets right soon.

They've painted themselves into a corner.  Deflation occurring.

Mr. Lucky's picture

I can come up with 15,000,000,000,000 reasons for a starter.

Pete15's picture

Core inflation mind you the offical govt numbers has inflation around 4%, so its a lot higher and congrats we could be seeing the new low in gas prices, Its gonna blow seeing the new highs. 

SWRichmond's picture

Just because you can't afford it doesn't mean it's going to fall in price, when priced in fiat.  That is an assumption on your part that you will find to be fatal, and all the muscles in the world won't help you.

akak's picture

Deflation is a threat in search of a reality ... but our reality is most definitely NOT the one.

fnord88's picture

Deflation and inflation are like relativity, it depends entirely upon your reference frame. Everything is going to inflate in dollars, and deflate in ounces of gold.

akak's picture

I can't disagree with you there --- but of course, the usual definition of deflation takes the (fiat) currency as the numeraire, not gold.

SWRichmond's picture

Exactly correct.  This is a deflation, and gold is money.  In a deflation, money becomes more scarce and its buying power increases w.r.t. everything, including fiat.

PulauHantu29's picture


Northwestern Mutual Makes First Gold Buy in 152 Years (Update2)


...but they can't eat it!

Pladizow's picture

Um - that "news" is 3 years old?

Fate's picture

The industrial economy is like an old jumbo jet, off which rivets have been flying willy-nilly for years.  The crew has been able to manage to avoid, thru clever use of duct-tape and cannibalizing of rivets from other parts, the catastrophic loss of most vital components, though they've lost an engine or two.  Now they're running out of tape, and there are no other rivets that can be used.  The continuous turbulence is getting very hard to ignore.  But there is another in-flight movie coming up, and there are still plenty of peanuts and drinks, so most of the passengers remain oblivious, though coach is getting restless... and the crew have secured their parachutes.

If God wanted man to fly, he would have given him wings. 


Hobbleknee's picture

...and they're headed straight for a mountain.
 night, with no radar.

FoieGras's picture

Gold has already replicated the 1970 - 1980 performance over the 2001 - 2011 period. If there's further appreciation in gold it wouldn't be a replication but an extension and blow off top.

Smiddywesson's picture

Absent the destruction of the currency, the record unemployment, the obliteration of the housing market, the insolvency of the banks, and the mirror image of what is going on here in virtually every other country in the world, IN A GLOBAL ECONOMY, I think the use of what gold did in the past is very illuminating.

SWRichmond's picture

"If there's further appreciation in gold it wouldn't be a replication but an extension and blow off top."

That is based on the assumption that all of the ills have been cured, all of the losses taken, all of the banks back on their feet, and confidence restored in fiat currencies.  Right?

buyingsterling's picture

Fiat has been in a perpetual blow off top since at least 1971

Ranger4564's picture

If these assholes are getting out of their shorts, then we are probably going to see a real plunge, hammered down to ultra low levels... they just don't want to signal it, or lose with shorts that are overpriced.  Just speculation based on the way these evil douche bags appear to think.  (Un)fortunately, I'm almost 100% in precious metals right not.


Thoughts on this?

Smiddywesson's picture

They appear to love to smash down PM prices around options expiry.  We are likely to see your scenario play out over the period from now to Oct. 26th.  On the other hand, PMs have held the $1600-$1650 range very well despite some very active pre-market price manipulation so the options expiry game may yield diminishing returns for the manipulators.

The only advantage of trading paper is mobility.  Unless you think something more than talk is going to come out of this weekend's events (EU talks and I think a G-20 meeting?) then the risk of missing the big move appears out weighed by the probablility of yet another smashdown.  I know that isn't very illuminating, but if I can see it, then so can a lot of other traders, and that knowledge makes it a reality.

Chicken_Little's picture

Bought some gold last night in Pattaya, Thailand and the premium is 3% above the prices listed on the door. If you sell, expect to get 5% less than the prices listed on the door. They say the prices on the door are only what the Thai gold society says they are. In a month I'm going to Bangkok with a fellow gold bug and we're going to Chinatown where the big shops are. I will report back.......

Most Thai families have some physical gold hidden somewhere. Back in 1997 they were selling in long lines at gold shops and I remember reading about it from the USA and wondering WHY? Now I know, they had to cash in their insurance. How many American families have something stashed?


augmister's picture

The only thing American families have stashed is garages full of junk bought with credit cards... worthless goods (you can buy this stuff on Craigslist if you need any of it at 50% off original price) they have loading on to plastic that will keep them and their children indebted for life! Insanity,

FEDbuster's picture

You are right about that.  The "cash for gold" places around here are starting to close, people don't have any gold or silver to sell to them.  The local swap meet was packed with people selling truck loads of crap for pennies on the dollar of what it originally cost. One guy at the swap meet was buying up anything metal and cheap to take to the scrap yard (which by the way are booming). Swap meet, scrap yards, craigslist, Ebay people are unloading the crap for cash. "Moving/foreclosure" sales are still plentiful around here, too.  Welcome to Bartertown!

Rynak's picture

Between the braindead appeal to fundamentals and technicals by goldcore, and the braindead paper-pushing of robottrader.... i'm not sure which is worse.

Folks, it's a videogame, and 90% of the players are running around with godmode enabled.... until that changes, you can put the daily prices of metals, stocks and currencies into the trashcan - there is no "market" - there only is the matrix.

andyupnorth's picture

My 3-year prediction is based on the following 3 points:

1- Stock slide down 50% a la Japan (ZH had a nice picture that overlaid the two) -> DOW = 6000

2- From this article, gold has only done a 500% increase over the past ten years, and needs to go up another fourfold in order to replicate the 1970s-80s. ->  Gold = 6000

3- The DOW/GOLD ratio should go to 1, as supported by points 1 and 2.

Bonus point- There's a descending triangle over the past decade in the USD/CAD, which points to a big drop in USD = 0.60.  This weakening of the USD would be due to massive printing, and the strength gold would support the CAD.


DOW = GOLD = 6000 in 3 years... a nice, steady, nearly straight-line move.

Missiondweller's picture

Good call. This story from SA shows the historic chart (gold:dow ratio) that support your thesis.

OutLookingIn's picture

@ andyupnorth,

Take your rose colored glasses off! Nothing moves in "a nice, steady, nearly straight-line move."

I agree that at some future point the gold/DOW ratio will approach, or be at a 1:1 ratio. What that level will be is anyone's guess? The really big move will be in silver because of it's very small size, compared to the gold market and it's scarcity.

Charts are nice for an indication of what HAS occurred, but to use them to predict future actions on past performance, is a bit like reading chicken bones or tea leafs!