Gold Investments Market Update – Gold Fell Some 50% in Middle of 1970s Bull Market, Prior to Rising 800%

Gold

Gold was flat in New York yesterday despite the increasingly bullish macro environment. Gold closed at $803.40 down $1.20 and silver closed at $12.92 down 12 cents.

Gold rose in early trading in London but has subsequently given up some of the gains as the dollar has rallied again (1.4456 to EUR).

Oil is stronger and remains at the upper end of its recent range ($110.18 a barrel – Light Sweet Crude Oil Future – Combined – OCT08) and this should be supportive of gold.

Gold has been in a range and consolidating between $775 and $845 for more than 3 weeks. A daily and weekly close above $845-$850 will be needed in order to rectify some of the serious technical damage done in recent weeks and to confirm the gold bull market remains in full effect.

Gold Fell Some 50% in Middle of 1970s Bull Market, Prior to Rising 800%

Gold would have to fall by some 50% to massive long term support at $550 in order to signal the end of the bull market. In 1974, gold had risen from $35 in 1971 to some $200 (December 1974) prior to sharp falls to nearly $100 (August 1976).

Given the extent of international demand it is extremely unlikely that gold could fall a similar amount today. Indeed, it is estimated that the average production cost for gold mining companies to produce one ounce of gold has now surged to over $750 per ounce. Which will lead to a floor being put under the gold price at these levels.

Many heralded the falls in the mid 1970s as the end of the bull market when in fact it was just a long correction. Subsequently gold rallied from some $100 (August 1976) to over $800 in January 1980. While an eight fold increase in gold from today’s prices seems outlandish it is not beyond the realms of possibility and the inflation adjusted high of $2,400/oz looks increasingly likely in the coming months.

Gold Monthly Close 1971-2008
http://www.research.gold.org/prices/monthly/

Today’s Data and Influences

Markets await today’s interest rate decisions by the European Central Bank and the Bank of England. The two central banks are expected to leave rates unchanged for the moment, however expectations that they will cut in the longer term have hurt both currencies.

Given the speed and scale of the UK economic slowdown, investors are convinced a rate cut is just a matter of time. For the first time since the early 1990s, Britain’s economy failed to grow in the second quarter of the year and many believe the country has already tipped into recession.

Today’s US Jobless data just after the NY open and ISM non-manufacturing (services) scheduled to be released at 1500 GMT will also be closely watched for indications as to the extent of the slowdown in the US.

Gold and Silver

Gold is trading at $807.60/808.10 per ounce (1215 GMT).
Silver is trading at $12.93/12.99 per ounce (1215 GMT).

PGMs

Platinum is trading at $1399/1413 per ounce (1215 GMT).
Palladium is trading at $288/294 per ounce (1215 GMT).

Mark O'Byrne

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