It's almost 28 years ago to the day, that gold traded up to $878 on an intra-day basis.
I know as I was there trading on the floor of the exchange. At the time inflation was running high as was the excitement of the "GOLD BUGS" and all the pundits who were all predicting that gold would hit $1,000, no make that $2,000 an ounce by the end of 1980.
Well guess what, gold never did make it up to $1,000. As a matter of fact, shortly afterwards gold began to lose value, This came as a big shock to the goldies who could not, would not, and did not believe that their precious metal could go down and lose purchasing power.
So what happend almost a generation ago? What caused gold to evapoate and lose value for the next 28 years?
The main reason was that inflation began to come under control and there was little reason to own gold. The bigger reason in my mind, was that the perception of the market had changed.
So where does that leave us?
Here we are 28 years later and gold is trading at new all time highs of close to $900 an ounce. Can you imagine holding onto an investment for 28 years just to get even!!!
I know that generally gold has not been a good investment over the years. It may not have been a good investment, but it has proven to be a great trading market.
The talk now is that gold should be in inflation adjusted dollars trading at $2,100. Well it's not, it's trading just below $900.
Will it go over $900 and hit $1,000 ... who knows?
Is the trend in gold up? Yes, it is.
Is the trend likely to continue ... who knows.
What I do know is that gold is a great trading vehicle, and you can do very well trading in and out of this metal.
It all comes down to this, it doesn't matter which way the market is headed, what matters is you get the direction right.
Good traders listen to what the market is saying and not what the pundits are pushing.
It all has to do with distortion of the reality field and traders perception. I always take the safe bet and listen to what the markets are saying and doing.
If you haven't watched my video on gold or looked at our Q3 results on gold (we are updating Q4 results now and they are positive) then you may be missing out on some great trading opportunities in '08.
Every success trading the yellow metal.
8 thoughts on “Is gold cheap or overpriced?”
gold is volatile as hell for a buy and hold approach. + no interest earned from it - only appreciation/depreciation of the commodity.
for the risk I will stick to a mix of junk/ treasury stuff.
not a buying time now. 2001 was the right time to get in. if you buy now and the dollar recovers - that will make you one sad panda.
besides fee's for holding physical bullion/bars are quite impressive. and if you are planning on hoarding it in jewelry,coins,etc.. expect huge markups on purchase price due to collector aspect of coins (and the rape me business of jewelry) and huge decreases in selling it as who you are selling it to wants to make 10-20% when they sell it.
just not too attractive to me. don't like commodities in general but if I had to pick one it would be silver due to the fact that it gets gobbled up faster than it can come out and the gobbling is growing quite rapidly.
just my .02
Gold... everyone is pumping it now. Merril Lynch expect gold could go as high as 1500 dollars... don't you think if Wall Street is pumping something, the retail investor will end up being the bagholder. Look at how much those punks have already lost. Don't worry, this time it is different.
Tell me, what is the utility of gold in a modern economy?
Thank you for your feedback. You are right, someone is going to be left holding the bag. The bag holders may come from much higher levels. The public in general is not in on this trade yet.
To answer your question about gold as a utility in the modern economy it's a very very small however, perception is everything in the market and right now the perceived wisdom is that gold is moving higher.
All the best,
Gold is trading a little above than its average price. its area of consolidatiton. lost its channel and trend.
rather than holding lots til day of judgement, you must trade on daily basis.
Please help me. I am a first at gold trading and I feel bad that I had helped a charity that is struggling to purchase gold. I suffer anxiety and was told not to spend anymore than 1,300 an ounce for gold bullion. I got excited and bought them 30 1 ounce gold bars at $1,350 dollars each. I feel so stupid. What if gold doesn't go up soon. The next day it was down $1,118.00 an ounce and I lost about $5,000.00. Did I do a stupid thing?? Some of this money was a related founder. Please help II am loosing stleep
Actually in inflation adjusted dollars, to equal the high of 1980, the gold peak would be much higher than $2000. The reason of course is the changing of the CPI calculations under the Clinton administration where hedonics (yes that car with the extra gimmicks we don't need or use has actually gone down in value!), substitution (that steak has been substituted by dog food so the measure has gone down) and geometric weighing (adding disproportionate weighting to the calculation) have understated CPI by 3-4% as some experts have pointed out. So don't believe that $2000 number. Using 1980 cpi calculations, gold would have to peak at $4000 or $5000. Read it up and believe it.
Actually in inflation adjusted dollars, to equal the high of 1980, the gold peak would be much higher than $2000.
The reason of course is the changing of the CPI calculations under the Clinton administration where hedonics
(yes that car with the extra gimmicks we don't need or use has actually gone down in value!), substitution (that
steak has been substituted by dog food so the measure has gone down) and geometric weighing (adding
disproportionate weighting to the calculation) have understated CPI by 3-4% as some experts have pointed out.
So don't believe that $2000 number. Using 1980 cpi calculations, gold would have to peak at $4000 or $5000.
Read it up and believe it.
>>"The main reason was that inflation began to come under control and there was little reason to own gold. The bigger reason in my mind, was that the perception of the market had changed.
So where does that leave us?"
I agree more with you first sentence stating inflation was brought under control.
Paul Volcker fought the inflation of the 1970's due to Nixon defaulting on our dollar obligations to the world and severing the link of our dollar to gold. Also of course was Carter and then LBJ's "Gun's N' Butter" policies.
Back then we were still a legitimate world power and the greatest creditor nation in the world and the lead manufacturing country with exports, etc. so Volcker could seriously fight inflation by putting us intentionally into recession by restricting liquidty.
Of course they burned him in effigy because most didn't realize that the necessary "medication" for inflation was much higher interest rates.
Sadly today mostly due to two decades of "Greenspanian economics" and Clinton-Rubins "strong dollar policy" by supressing gold our deficits are massive and our manufacturing base gone to the land of cheap labor costs.
Today as the world's greatest debtor nation and having a trade profile of a 19th century third world colony (no exaggeration) and with Bush pursuing his wars being fought with borrowed money (as he cuts taxes )and he also signed the Medicare Prescription Drug Bill that will cost 5 times that of Social Security. Guns N' Butter, part II? we no longer are able to fight inflation as Volcker did due to our massive deficits, citizens in debt and with no real savings, etc.
The Fed realizes this and with the sub-prime debacle weighing heavily upon many Americans and banks they are "fighting inflation" by creating more inflation.
"A man can always stop the aging process by blowing himself up, for example, just as a central bank can avoid deflation by destroying it's currency, and an economy can defer debt correction by inducing people to borrow more."
William Bonner, Financial Reckoning Day
Adjusted for inflation gold is about $340. in 1980 dollars as today it requires $2.55 to equal one, 1980 dollar.
If we consider that in all probability Bernanke will continue to reduce the Fed Fund's rate considerably, gold may become much cheaper in 2008 dollars.
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