15 July 2009

2009 isn't 1979

Many commentators like to draw parallels between the run up in the gold price in 1980 and now, or to look for matching patterns. A perfect example of this is a chart by www.zealllc.com where he overlays 1971-1981 over 2001-2009, but I can't find the link at the moment.

When reading Martin Armstrong's Practical “Laws” of Global Economics (26 Nov 2008) this bit got me thinking about drawing parallels:

Before fax machines, the analysis I produced was delivered by Western Union via telex and in the early 1980s, sending just one telex on one market cost $50 to the middle east. Every day, each market was covered in the financial group including precious metals, stock indexes, and all major currencies. The cost to take all the subscriptions could exceed $200,000 just in telex fees that adjusted for inflation in 2006 dollars would be $1.6 - $2 million. So the audience just happened to be the major institutions and government around the world.

Compare the slowness, and limited distribution, of information at that time to what the Internet now provides us with. As a result I can see no validity in trying to deduce what will happen to the gold price by analysing movements from the 1970s, apart from generalisations. Information flow and feedback are hyper accelerated. So will be the rush to gold if (when) confidence in fiat is lost.

3 comments:

Alan von Altendorf said...

So will be the rush to gold if (when) confidence in fiat is lost.

Blew my mind. Yikes!

Bron said...

I think this will be the last opportunity to buy coins and bars at reasonable premiums, something I need to write a blog about.

Ed said...

I know what you mean, however human nature never changes which is why patterns repeat themselves over and over because prices are just a relection of the two forces which drive price trends, fear and greed.

The patterns won't repeat exactly, but you may find patterns in daily charts that end up repeating in weekly charts.