Gold to Correct after Front Page Financial Times Article? Gold in 2011 vs the 1970s and 1979

Gold is trading at $1,604.10/oz, €1,132.20/oz and £995.66/oz. 

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. 
 

Year

Start

End

Gain

Percent

1979

$234.40

$563.20

$328.80

140.27%

1973

$65.10

$112.25

$47.15

73.56%

1974

$112.25

$186.50

$74.25

66.15%

1972

$43.48

$65.10

$21.62

49.72%

1978

$170.30

$234.40

$64.10

37.64%

1977

$137.00

$170.30

$33.30

24.31%

1971

$37.44

$43.48

$6.04

16.15%

Gold’s Annual Appreciation in the 1970s

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 1970s 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 1970s 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.

SILVER 
Silver is trading at $40.33/oz, €28.47/oz and £25.03/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,779.00/oz, palladium at $791/oz and rhodium at $1,925/oz. 

NEWS
(Financial Times) 
Gold Beaches £1,000 Barrier – Investors head for havens in debt storm

(Reuters)
Gold hovers below record, extends gains to 12th day

(Bloomberg) 
Europe Commodity Day Ahead: Gold May Extend Best Run in 31 Years

(Financial Times) 
India’s growing wealth bolsters gold demand

COMMENTARY
(The Telegraph)  
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 

(King World News) 
London Trader – Potential for Major Short Covering in Gold

(The Market Oracle) 
Marc Faber on Gold, Silver, Deflation and the US Economy

(Zero Hedge)
The Head Of The World’s Biggest Hedge Fund Sees "Economic Collapse" Due To Money Printing By Early 2013 

(Uncommon Wisdom)
Own Gold – The best asset class you can for these kinds of times – Larry Edelson

Mark O'Byrne

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