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Message: GOLD 1980 & Now
Gold 1980 Vs. Today
When discussing gold investing, the first thing that comes to mind is 1980, the last year of a major and historic run up in the price of gold. From 1971 to 1980, gold went from 35 dollars per ounce to 850 dollars per ounce, up over 2,300%. This really puts into perspective the current run up in gold. Since 1999, gold is up a healthy 580%, but in order to match 1980 it would have to eventually rise to over 6,000 dollars an ounce.
Are we saying that this is 1980 all over again? No, comparing the two run ups in the price of gold is like comparing the moon landing to fly fishing, there is no comparison. First off, in 1971 President Nixon closed the gold window essentially taking the dollar off the gold standard. Shortly there after, in 1974, Americans were allowed to officially purchase gold bullion allowing Americans to enter the gold market for the first time since FDR made it illegal to own investment gold. From 1933-1974, Americans were legally allowed to own gold jewelry and collectible coins, not gold bullion. With inflation on the rise from Vietnam and new entitlement spending, gold buyers in the mid 1970's found themselves in the perfect storm. Gold rallied until it reached bubble mania, average everyday people purchased gold in order to make a profit. Just like all bubbles, everyone wanted in as they saw an easy profit.
With public participation, the bull market of the 1970's turned into bubble mania with gold rising 268% in 1980. Imagine if cable reality TV shows would have been around back then, we would have had shows about gold flippers and real life treasure hunters. By the 1980's inflation was soaring and the Federal Reserve was using everything it had to tame it, key lending rates were set in the teens. After the bubble burst in the gold price, gold officially fell off of everyone's radar and for the first time in human history, the world didn't care about gold. Gold was no longer money, the fiat world of constant credit expansion and money printing had replaced absolute value with perceived value. Currencies were no longer held up to a gold standard, instead fiat currencies were valued against other fiat currencies, a race to the bottom so to speak, yet graded on a curve. Looking at price inflation from 1800 to 1971, with the exception of war time, prices were stable. However, from 1971 to 2010, with government and bankers allowed to create as much money as they wanted, we have seen a 500% increase in price inflation.
So, here we are 40 years later (from 1971) and we find ourselves in a crisis of confidence. After seeing the largest credit and monetary expansion in history, the world finds itself doubting not only government and stock markets, but even the fiat currencies that were supposed to be as good as gold. Which leads us to one of the most striking differences between 1980 and today.
During the late 1970's gold mania broke out because people wanted to make a profit, hedging against inflation was certainly a component, but that's not what creates bubbles. Today, people are buying gold not because they are focused on making a profit, but because they are focused on not losing. Though most investors don't understand gold or own any of it themselves, the few that are buying it, are buying it for protection. Again, a hedge against inflation is a catalyst for many, but the deflationist out there are buying gold too. Gold is money, so whether you believe in deflation, inflation, or stagflation, gold is the alternative to the entire forex. With the exception of the last 40 years, gold has been money, a medium of exchange, a constant unit of account. Relative to the price of everyday goods and services gold has held its purchasing power.
1980 Vs. Today
- The Federal Reserve's key lending rate was in the teens, today it's around zero percent.
- Gold had just been retired as a currency. Today, gold is being accumulated by nations as a currency diversification.
- By 1980, bubble mania had set in and gold was being purchased to profit. Today, it still isn't understood or held by most investors. Those that are buying, are buying not to lose.
- The U.S. government was trying to tame inflation. Today, economist are worried about deflation and are advocating for more inflation.
- Paul Volcker was in charge at the Federal Reserve and today, it's "Helicopter Ben," need we say more.
- By the early 1980's, after 204 years, the United States had an official deficit of around 1 trillion dollars. The last trillion added to the deficit only took 7 months.
- In 1980 there are stories of gold shops that had lines that stretched outside the doors. Today, Americans are lined up outside "We Buy Gold" stores to sell gold. Sure there are gold commercials on news stations, but the massive public participation needed to fuel a bubble isn't there. When "Cash for Gold" is running ads on Super Bowl Sunday, that's a sign that the public is completely ignorant of the gold bull market, remember Cash for Gold is a company that buys gold from the public. In fact, CBS did a report recently that showed the public not only selling gold, but selling it for 10 cents on the dollar to companies like Cash for Gold.
When looking at ways to purchase gold, we believe all investors should hold some physical gold. Having money in your possession is always smart in case of an emergency. When it comes to seeking more than just safety, it is wise to look at history before making any decisions. We here at
Mining Shares Update
In the past few days, many gold and silver miners have been hit hard. One on our radar this year has been NWM Mining (TSX: NWM & OTC: NWMMF), who is now at a 52 week low. Gold production began last May and a formal declaration of commercial production is expected this coming January. NWM also has a second deposit coming on stream early in 2012 with a further ramp up in gold production. We recently spoke with their CEO Chris Berlet who stated that there is significant exploration opportunities and the company has recently announced a strategic review which is expected to be a catalyst for unlocking depressed shareholder value.
Big Interview Coming
>article yesterday, Senator Jon Kyl of Arizona has stated that they would look for a way "to work around" some of those automatic spending cuts. Expect plenty of more downgrades to come, the mob of democracy has voted themselves gifts and they are not going to give them up easily.
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