James Turk has studied the gold market for decades. In Mr. Turk's missive of 22 April 2007, he made a very insightful point that people interested in the gold market should be aware of:
"In fact, gold has closed above $800 on only 3 days - the day of the blow-off peak and the 2 days before. In its entire history, gold has closed in the $700s on only 12 days, of which 3 were in May 2006.
"It is even more startling to look at gold's weekly closes. In its entire history, only once has gold closed the end of a week above $800. What's even more surprising, is that only once has gold had a weekly close in the $700s, and that one occurred in May 2006."
- James Turk, 22 April 2007
The above quote and chart are from Mr. Turk's 22 April 2007 commentaries.
The point was that gold with a $700 or $800 handle is a very rare event. Such extremes in prices have occurred for only 15 trading days since January 1980. When one considers that gold has traded for over three decades free of overt official price controls, $700 or above gold has happened only for 0.12% of one percent of the 1,720 weekly closings since 1974. The table below illustrates Mr. Turk's insightful point.
People who follow the precious metals markets note that gold's all time high was around $840 because this is a fact. Personally, my opinion is that from 1974 to the present time, plus $700 gold is more noise than data. If you blinked, you missed it. What kind of price is that?
Mr. Turk inspired me to take my weekly closing spot gold prices and make a 10-week moving average from the series. Moving averages are excellent for removing transient prices from a data series. What I found was very interesting. In the 26 March 2007 issue of Barron's, the 10 week moving average for Handy & Harman's spot gold price made a new all time high and continued to do so up to their latest issue (14 May 2007).
More than just 27 years separate these two all time highs. The public's understandings of gold, money and all things economic from personal financial habits to people's choices of investments have changed beyond recognition since January 1980. There is no better illustration of the gulf between then and now than what has been recorded in pages of Barron's. As a financial publication that spans 86 years, it is a superb source of contemporary popular opinion of things financial like gold from decade to decade. And from decade to decade, things change all the time.
From Barron's first issue in May 1921 until January 1980, it provided extensive coverage of gold. Gold was money and money was understood as something in terms of gold for most of those 59 years. The flow of gold (money) in and out of the United States was of interest to investors from the 1920s to the 1980s as these flows determined interest rates and prices. The editors of Barron's decades ago also provided the public with a very down beat opinion on the management of money and credit by the Federal Reserve, and government deficit spending. It is important to understand this because the 1976-80 rise of gold that drove its 10 day moving average to 654.54 in March of 1980 was fully supported by the financial media.
There was no shortage of reputable investment advisors with access to air time and print ink urging people to buy gold. Typical of the investment advice in news papers or television twenty seven years ago was expert opinion of gold going over $1,000 an ounce. Concerns over double digit inflation and the ever falling value of the dollar were acknowledged by the US government itself. Purchasers of gold in the late 1970s were motivated buyers living in an inflationary environment where the only things going down in price were stocks and bonds.
But not all the purchasers of gold were readers of Barron's or Forbes. I was in the United States Navy, deployed to the Western Pacific at the precise peak of the 1976-80 gold market. My ship's photo is below.
Young sailors who typically had other things on their minds in liberty ports were spending hundreds of dollars on 24k gold jewelry. This was much regretted by local providers of beer and feminine companionship, who if the truth be told were buying gold too. In March 1980, when spot gold's 10 day moving average peaked at 654.54, gold fever was an international epidemic that even infected the most unlikely of people. Then as quickly as sailors bought gold at high prices in this port, they sold their gold at lower prices at that port. The fever had broken, and gold went into a two decade long bear market. Unnoticed, very quietly, and with little public participation at first, the still much despised stock and bond markets of the early 1980s rose upward for the next twenty years.
Twenty seven years later in 2007, the financial media is telling us that the dollar is weakening, but the Fed has inflation under control. This is a whopper that no one would have believed in 1980, but this is twenty seven years later. We hear frequent warnings of commodity bubble prices collapsing. Barron's in its 07 May 2007 issue (page 17) used Mr. T from the old TV show "The A-Team" for a gold indicator. The Mr. T gold indicator is currently a sell. Expert opinions hold that the stock market is on its next bull market leg upwards, and the real estate market, is not a bubble in danger of popping. And in case you wanted my opinion, I suspect that sailors in the 7Th Fleet are not currently purchasing hundreds of dollars of 24k gold jewelry in East Asian liberty ports, but are enthusiastic purchasers of mutual funds. But note how none of this matters to gold as it rises ever higher in price.
As the world's attention is focused elsewhere, very quietly gold's 10 week moving average, starting with Barron's 26 March 2007 issue reached a new all time high of 654.57 and has continued to do so for the following seven weeks. The data from Barron's 14 May 2007 issue drove the 10 week moving average to 670.54. This is a significant achievement when one considers the very negative coverage given to commodities in general and precious metals in particular. Even Mr. T is bearish!
With all due respect to Mr. T, I have to disagree with him on the future direction in the price of gold. To see gold's 10 week moving average breaking to new all time highs after twenty seven years, with no support or promotion by the investment industry is amazing and very similar to the stock and bond markets in the early 1980s. This is smart money buying an undervalued asset. The only kind of asset smart money buys. And they have been buying gold for the past six years under the radar screen of 99% of the investment public. The same can be said for silver, copper, molybdenum and just about any metal you care to look at. The entire metals complex has been on fire for years. All the while Wall Street continues to promote common stocks in high tech and financials to the retail investing public who historically do no better on Wall Street than they do in Las Vegas. They were buying gold in 1980, its stocks in 2007.
Looking at my chart of gold's 10 week moving averages, I don't understand how any gold bug who has been following gold for the past 10 years has failed to make excellent profits on the precious metals or in the mining shares. Avoid leverage and hedged mining companies like Barrick Gold. One buys them and then one forgets them. I look at my portfolio every few months and have been pleasantly surprised with the profits I've made. In time, I'll do even better as this bull market has not really started to move yet. The gold fever will get hot when the public decides to buy at some unknowable date in the future. Until then, don't try to be fancy.
On the basis of gold's 10 week moving average, I say that gold has reached new all time highs in its price and is poised to move much higher in the years to come. You may disagree. But any long term chart dating back to 1974 will show that metals have underperformed stocks and debt for decades. That changed in January 2000. The day is coming when the world will agree with me that stocks are a sell and gold and silver are a buy. Will that be when gold is at a spot price over the January 1980 highs of $840? I think that is very likely. So if you are considering investing in gold, silver or mining shares do it now. Don't wait until the US 7th Fleet gets involved. Sailors tend to buy high and sell low.