Mining.com/Michael
Allan McCrae/10-14-2016
“Traditionally those long bear markets for commodities average about 20
years—and that is using data back to 1800—and we are only in year five.”
MK note:
The more things change, the more they stay the same
It should be noted that Wells Fargo”s John LaForge saw $660 per ounce as
“in the cards” in October, 2014. At the time gold was trading in the
$1200 range. Since then it got as low as $1060 in December, 2015, but
in January gold’s turnaround began and it hit an interim high of $1366 in
July this year. So, at best, LaForge on his earlier prediction was off
the mark by $400 at its low and $706 at its high.
Now, with gold trading in $1250 range he is back with a new
prediction. He has adjusted his downside prediction to $1050 – $390 higher
than his last target to the downside. (One wonders what happened to
force the upward adjustment from his original $660 target.)
LaForge thinks gold is caught up in a commodities bear market that began
five years ago and that is why it is headed for $1050 per ounce. There
are a couple of things wrong with LaForge’s analysis.
— First, if there is one area of significant disagreement among
analysts, it is on the nature of cycles – when they begin, when they end, how
long they last and whether or not current cycles under a fiat money system
can be compared to cycles when we were on the gold standard. And that covers
just the high spots. In short, LaForge could be right in his assessment, or
he could be wrong. At best, he is making an educated guess.
— Second, and more importantly, one can put gold in the same
container with the rest of the commodities if one so chooses, but is that a
valid, better put workable, classification given gold’s other
function as a safe-haven asset? In the disinflationary years from 2008
until present, for example, gold went from $680 to $1800 at the top and
trades at $1250 now. In the same period, the Bloomberg
Commodity Index went from 233 to 85 now. In short, by any measure
commodities collapsed while gold went significantly higher – the opposite of
what LaForge is proposing.
All of this reminds me of an old Murray Rothbard quote that I first
encountered when I entered the gold business in the early 1970s. He included
this insight in the intriguingly titled pamphlet, What Has Government
Done to Our Money.
“All pro-paper economists, from Keynesians to Friedmanites, were now
confident that gold would disappear from the international monetary system;
cut off from its ‘support’ by the dollar, these economists all confidently
predicted, the free-market gold price would soon fall below $35 an ounce, and
even down to the estimated ‘industrial’ nonmonetary gold price of $10 an
ounce. Instead, the free price of gold, never $35, had been steadily above
$35, and by early 1973 had climbed to around $125 an ounce, a figure that no
pro-paper economist would have thought possible as recently as a year
earlier.”
As you can see, even when gold was trading at $35, its adversaries were
predicting lower prices ($10 per ounce), and even then under the flimsiest of
arguments. Its ‘industrial” nonmonetary price? How is
that different from its monetary price as an alternative to paper
money holdings? Ultimately in that first leg of gold’s long term bull
market, it went well over $800 per ounce – a far (very far) cry from
$10!
The more things change, the more they stay the same.
Get yourself a parachute, if you don’t already have one. And if you
already have one, make sure it is big enough to hold up the value of your
portfolio.
________________________
By the way, for those with an interest, you can still access What
Has Government Done to Our Money at the Mises Institute – a good
starting point for those who wish to understand the mechanics of money
printing, deficit spending, etc and how it affects the value of the money we
store in our bank accounts, stocks, bonds and any dollar-denominated asset.
