Even though investors are constantly told in disclaimer boilerplate that “past performance is no guarantee of future performance” the siren call of historical price charts is hard to resist. In the case of gold and silver, it is impossible to avoid projecting the 1970s bull market on today’s price action due to its epic nature and perfect representation of Dr. Jean-Paul Rodrigue’s bubble behaviour.
Gold bulls would argue that economies and financial systems have not been healed and accordingly the gold price top in 2011 was only a mid-cycle peak similar to the peak of $197.50 in December 1974. In chart form this claim manifests as per below.
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Isn't the ratio of goldprice to money-supply a good test to see which is the most likely scenario?ReplyDelete
2011 the goldprice was 1900 and m2 10 trillion, a ratio of approx. 200. 1975 it was about the same, with a goldprice of 200 and m2 of 1 trillion. At the peak of 1980 though it was above 500, 2,5 times higher than in 1975 and 2011. So in that respect 1975 seems more likely.
Just realized the numbers above must be controlled for annual gold production. Assume average annual mine output equalling 1,6% of above ground gold during 1976-2011. That would give an adjusted gold price at the peak of 1980 of 850, and a ratio of 570.ReplyDelete
The adjusted gold price at 2011 would be 3300 and the ratio then 330. Still closer to the situation in 1975 than in 1980.