Gold More Than 50% Below Real Record High Of 32 Years Ago
Mark O'Byrne | Jun 19, 2012 08:17AM ET
Gold Today's AM fix was USD 1,628.50, EUR 1,291.74, and GBP 1,040.31 per ounce.
Yeterday’s AM fix was USD 1,623.50, EUR 1,284.52, and GBP 1,035.20 per ounce.
Gold edged up $1.20 or 0.07% yesterday in New York and closed at $1,627.40/oz. Gold remained steady in Asia seeing gradual gains which continued in European trading.
Gold rose for an eighth consecutive session today, its longest winning streak in almost a year. The gains may be due to concerns that the U.S. Federal Reserve may launch further non conventional monetary measures, such as QE, in increasingly desperate attempts to prevent the world's largest economy falling into recession or depression.
Gold has gradually rose 3% in the last eight sessions and is also supported by the debt crisis in Europe with initial euphoria over a victory for pro-bailout parties in Greece giving way to persistent concerns over Spain and Italy and their banking sectors.
Today's Spanish debt sale saw Madrid's borrowing costs rise even more. The average yield on the 12-month bill was 5.074%, against 2.985% previously.
The Federal Open Market Committee (FOMC) releases a policy statement at the end of its two-day meeting on Wednesday. The Fed's current "Operation Twist" programme, which involves buying long-term debt and funding the purchase by selling short-term notes, is scheduled to expire at the end of June.
The Fed appears increasingly likely to offer even more monetary stimulus despite political opposition, concerns about whether it will be effective and the still underestimated risk of inflation.
The Group of 20 summit said that leading and emerging economies will "take the necessary actions" to strengthen the global economy and if growth weakens substantially, countries without heavy debt loads stand ready to “stimulate their economies.”
Physical buying was reported as "lacklustre" in bullion markets in Asia however it is worth noting that similar reports of limited demand have been seen in much of the last 12 months and yet demand from China in particular has increased significantly and remained very robust.
Western institutional demand for gold and silver remains robust as seen in the ETF holding figures.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust climbed by 0.33 percent on Monday from Friday, while that of the largest silver-backed ETF, New York's iShares Silver Trust rose by 0.62 percent for the same period.
Gold is less than 18% below the record nominal high of $1,915/oz seen in late August 2011, nearly 10 months ago. In January 1980, gold traded at $2,600/oz in real terms - adjusted for the significant inflation of the last 32 years. See chart above courtesy of Nick Laird in Sharelynx.
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Importantly, today gold at $1,630/oz is still 50% below the real high from more than 32 years ago.
There are very few assets in the world that are trading at well below their real price in 1980. An example of this is the Dow Jones Industrial Average which was trading at 1,000 in 1980 and is today trading at 12,700. Therefore it is nearly 13 times higher than its nominal high in 1980.
Gold's nominal high in 1980 was $850/oz. Today gold at $1,630/oz is less than 2 times its nominal high in 1980. There are very few goods, services or assets that are only twice their cost in 1980.
This shows how gold is far from overvalued from a historical perspective. While this may seem hard for some to believe due to gold's gains since 1999 which has seen gold rise 6 fold in 13 years.
However, these gains came about after a massive 20 year bear market that saw gold go from being overvalued to being massively undervalued. The anti gold and "gold bubble" brigade will say that the 1980 high price was a massive bubble as seen in the parabolic price move and subsequent collapse.
They are correct in this. However, they fail to realise that nearly all assets move in cycles from undervalued to fairly valued to overvalued and then to the mania phase of significant overvaluation.
The gold market has yet to see that mania phase with gains being gradual in recent years, last year and so far in 2012. Mania is nowhere near the gold market with the majority of the public having no allocation to gold whatsoever and the non-specialist financial media covering gold very occasionally and covering it very sceptically when it does.
There continues to be a complete failure to understand gold’s importance as a store of value, an important diversification and as a crucial safe haven asset.
Another important consideration today is that gold may not have a parabolic price move up and then price collapse a la 1980 as today there is the real possibility that there is a return to some form of gold standard.
Gold may be revalued to a much higher price and that price may be fixed at this higher level.
Other News
(Bloomberg) -- Gold ETP Holdings Climb 6.1 Metric Tons, Most Since March 29
Gold holdings in exchange-traded products backed by the metal rose 6.1 metric tons to 2,399.72 tons, the biggest gain since March 29, data tracked by Bloomberg showed.
(Bloomberg) -- IShares Silver Trust Holdings Gained 60.34 Tons as of Yesterday
Silver holdings in the iShares Silver Trust, the biggest exchange-traded fund backed by silver, gained 60.34 metric tons to 9,804.85 tons as of yesterday, according to figures on the company’s website
(Bloomberg) -- South Africa will study ways to “address current challenges” facing platinum producers, the government said after meeting companies and labor unions, as falling prices threaten profitability.
The parties will set up a group to consider options, the Department of Mineral Resources said today in a statement.
South Africa provides more than three-quarters of world platinum supply.
Anglo American Platinum Ltd. and Aquarius Platinum Ltd., the largest and fourth-largest producers, this month said they would idle their Marikana operation because of a “difficult” market. Eastern Platinum Ltd. also halted development of a mine. Prices fell about 13 percent in the past three months in London.
About 334,000 ounces of platinum and 170,000 ounces of palladium output “is unprofitable on a cash-cost basis,” SBG Securities (Pty) Ltd. estimated in a note. That’s about 7 percent and 6 percent of national output, respectively, it said.
The country is concerned about job losses, Mines Minister Susan Shabangu said June 12. About one in four people are unemployed in Africa’s largest economy.
(Bloomberg) -- Gold Futures in India Rise to a Record 30,388 Rupees/10 Grams
Gold futures in India, the world’s biggest importer of bullion, rose as much as 0.3 percent to a record 30,388 rupees per 10 grams.
The August-delivery contract traded at 30,379 rupees per 10 grams at 10:03 a.m. in Mumbai on the Multi Commodity Exchange of India Ltd.
(Bloomberg) -- India’s Gold Imports Seen Lower as Record Price Cuts Demand
Gold imports by India, the world’s biggest buyer, may slump this month as record local prices fueled by a decline in the currency cut jewelry and investment demand, an industry group said.
Purchases may drop to 20 metric tons to 25 tons in June, from 55 tons to 60 tons a year ago, Prithviraj Kothari, president of the Bombay Bullion Association, said in a phone interview today.
Bullion futures in India reached an all-time high today, while global spot prices for gold were down 15 percent from a peak. Demand in India plunged this year after the government twice raised taxes on imports, jewelers held their longest ever strike and as record prices spur scrap selling.
“Gold demand every day is dull. Prices are too high,” Kothari said. “Everyone is selling.”
August-delivery bullion rose as much as 0.3 percent to 30,415 rupees ($543) per 10 grams on the Multi Commodity Exchange of India Ltd., the highest since the exchange began trading the precious metal in November 2003. The contract was last at 30,388 rupees at 12:43 p.m. in Mumbai.
Prices rallied in India after the rupee depreciated against the dollar and the government increased the import duty on the metal, Kothari said. Gold in India may reach 32,000 rupees per 10 grams this month or next, he said. The rupee, Asia’s worst performing major currency this quarter, fell to a record 56.515 per dollar on May 31.
Scrap sales in India may more than double to about 300 metric tons in 2012 from 130 tons a year ago, Kothari said May 29. Gold demand is traditionally “slack” this month and in July because of the lack of weddings and festivals and as farmers wait to harvest their next crops, he said today.
Gold demand in India fell to 207.6 tons in the quarter ended March 31 from 290.6 tons a year earlier, the World Gold Council said May 17. Indian usage may shrink to 800 tons to 900 tons in 2012 from 933.4 tons a year earlier, according to Albert Cheng, Far East managing director at the council.
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