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It's now 6
months since gold hit its current all-time high. How long 'til the next...?
Thanks to
hindsight, the bull market in gold which followed Richard Nixon unpegging the
US Dollar, and therefore the rest of the world, from its last pretence of a Gold Standard sounds as inevitable today as
Jimmy Page's solo in Stairway to Heaven, also a 1971 classic.
But the gold price's rise from $35 per ounce to $850 in less than a decade
hardly ran that smooth at the time.
Hitting a new
record high of $70 per ounce within a year of floating free from the Dollar,
gold took 6 months to reach and breach that high again. The gold price then took a
further six months to break the next July's top at $127...then almost 7
months to break spring 1974's high at $179.50...and then more than three
years to top that winter's peak of $195.25 per ounce.
Knowing not
to sell but hang tight wasn't easy. Not least because US investors had only
just got in at the top. Nixon's successor as US president, Gerald Ford
made buying gold
legal for the first time in three decades on the last day of 1974. But
planning ahead, international bullion dealers had already pushed the price to
that peak of $195 per ounce just 1 day earlier. So come the middle of 1976,
America's earliest buyers had lost 45% before costs.
Who could
have said for sure that they would recover not only that loss, but make a
further 355% gain on top, when gold finally peaked at the start of 1980 - the
same year Zeppelin broke up? And who could have guessed that second peak
would then prove gold's ultimate climax - way up there, as high as heaven
itself - for nearly three decades, longer even than a live Jimmy Page solo?
Fast forward
to spring 2012, and it's now six months since gold hit what remains, for now,
its latest all-time peak - a London Gold Fix on 5 Sept. 2011
of $1895 per ounce.
Just how long
might gold owners wait to see it get there again? To date, the 21st century
bull market has enjoyed seven breathers longer than this one so far. Ignore
the first (it took the gold
price very nearly back to 1999's two-decade low beneath $253), and the
average wait in these extended pauses has been nearly 11 months.
As you can
see, higher prices are harder work to recover. The one before this - which
began the day Bear Stearns imploded - took the gold price one-third
lower for US investors. Its next peak (if not its final crescendo) came 180%
higher from there.
Think of it more
as Hairway
to Steven than Stairway to Heaven. Because like the Butthole
Surfers, investors either love gold or hate it, and the vast majority don't
get it at all. It makes one hell of a racket, terrifying and surprising those
who dare to go near it, pounding onwards and upwards, right until the moment
it falters and stops.
"Eventually,
there will be a crisis of such magnitude that the political winds change
direction, and become blustering gales forcing us onto the course of fiscal
sustainability," says Dylan Grice, strategist at Société
Générale in his new Popular
Delusions report for clients.
"Until
it does, the temptation to inflate will remain, as will economists with
spurious mathematical rationalisations as to why
such inflation will make everything OK...Until [then], the outlook will
remain favorable for gold. But eventually, majority opinion will accept the
painful contractionary medicine because it will
have to. That will be the time to sell gold."
In the
meantime, investors and savers cannot know that they are buying an uptrend
instead of the top. Gold took very nearly 28 years to recover the big top of
Jan. 1980 - way up there at $850 per ounce. That topped the 25-year recovery
in US stocks after 1929's Great Crash. We won't know if Japan sets a new
record pause with its stocks and real estate until November 2017. But the
30-year bull market in US Treasury bonds is sure to leave a heavenly
high-water mark when interest rates turn upwards from today's all-time
historic lows.
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