Gold: Is this 1980 All Over Again? Not Even Close. (Micro Doc)
February 21st, 2012
Over the last half decade or so, as the price of gold and silver have steadily risen, financial experts, advisers and pundits have often argued that gold is a bubble. They said it in the spring of 2008, as gold approached $900 per ounce. Likewise, as gold surpassed its nominal 1980′s high and went above $1000, those same analysts were screaming sell recommendations. To this day, with gold nearing $2000, they are still all marching to the same tune.
Headlines for the last three years have been heavily weighted against gold, with every price spike being met with bubble talk. When George Soros said in January of 2010 that gold was the ultimate bubble, the media pounced on it as evidence that precious metals were through. Of course, Soros had been acquiring millions of dollars worth of gold assets (and continues to do so today). His message was completely misconstrued. Gold, like any other asset that involves a buying frenzy, will eventually become a bubble. And given the reasons for why people buy gold – inflation protection and as a hedge against the loss of confidence in government stability – we can be fairly certain that gold and precious metals in general will eventually reach exorbitant levels and “pop.”
But, as Daniel Ameduri of Future Money Trends points out in the following micro-documentary, we’re nowhere near bubble territory yet.
It’s important to note that 1980 was the end of the gold run that started when Nixon closed the gold window in 1971. That was roughly a ten year run up in the price from $35 to over $800 per ounce.
This, however, isn’t 1980. Our debt-to-GDP ratio this morning hit 101% and is going much higher. We’ve added more federal debt in the last 7 months of 2011 than all of the years from 1776 to 1980 combined. The policy of our government is not to curb inflation is it was in 1980, but rather, to stimulate it, as evidenced by 0% fed funds rates (in the 1980′s it was in the teens!) and the massive monetary printing over the last few years.