The Bull Market in Gold Looks Familiar

Here is a 35-year chart of gold prices. Based on what you see, would you want to jump onto the gold buying bandwagon? I am bearish on gold over $1,000 per ounce and this chart is a good reason to at least be careful with the current precious metal of choice. The latest trend looks very familiar…


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5 Thoughts on “The Bull Market in Gold Looks Familiar

  1. This looks familiar to me as well. I lived through it.

    Gold’s 70’s run ended when Big Paul drove interest rates to extreme levels. Big Paul is still around but, in no position to repeat the interest rate rocket. No one else looks to ba a candidate to step forward and reprise the interest rate increases.

    Until this government decides to defend the dollar, defend yourself and buy gold.

  2. What is a good way to play contrarian here, i.e. betting against gold? If everyone’s rushing into it as the graphic shows and we believe the world isn’t coming to an end then it MUST get cheaper, even if it gets a little higher first.

    Selling GLD is what I can think of, but I wonder if there isn’t a way with less near-term downside.

    I know options are used for that, but I don’t know how and whether it’s applicable here.

  3. Chad Brand on October 8, 2009 at 11:31 AM said:

    Since GLD is the momentum trade right now, there probably aren’t many contrarian trades that do not come with the same near-term risks that you mentioned. Commodities are being powered higher by the weakness in the dollar, so betting on a bottom in the dollar would be another anti-gold play, but that too is going against the current momentum. For me personally, it’s more of a “I am not going to jump on the gold bandwagon” rather than wanting to get overly short GLD. I don’t predict a total collapse, but a retracement back to the 900 area is not a crazy projection in my view. We are around 1050 now and I would say 900 before 1200 if I had to make a bet on it. Risk-reward does not seem favorable.

  4. I’ve seen this chart before too. But I’ve seen it in real terms, not nominal terms. In other words, when gold prices are adjusted for inflation. As they rightly should. Who in there right minds would say that a $ buying an ounce of gold is the same as a $ buying an ounce today; try to use that same $ to buy a movie ticket, or a loaf of bread or a gallon of gasoline.

    When adjusted for price inflation that $750, 1979 price would equate to over $2000 in today’s dollars. That’s where the price of gold should be.

  5. Chad Brand on October 9, 2009 at 9:22 AM said:

    And the other side of that argument, Guru, is that gold is NOT an inflation hedge because it is not trading anywhere near $2,000 an ounce.

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