Gold and Oil…a 1970 and 1980 lesson

Posted: March 13, 2015 in Uncategorized
Tags: , ,

Winston Churchill said “The further back you look , the further ahead  you will see”.

If we look at the 1970s on gold in this perspective it looks very similar to the current situation

1970 USD35

Then a furious rally in 1974 to USD 180 (peak USD 195).

Then a mega crash in 1976 to US100 (and it really was an effort to keep the $100 as everyone left gold as it shows that exceptionally bad forecast from that period as usual from Citibank (and all the rest such as Goldman Sachs) (which usually tells you the reverse of what you should do (for one reason or another, your choice).

“The economic recovery that is now under way in most countries will likely continue for the next year, gold will lose some of its allure as an investment…[and] with inflation on the wane…[we] foresee the possibility of a price as low as $60 an ounce.”

Then Gold closed the decade…not at USD 60 as per Goldman forecast, but at over USD900 in the 1980!

So if the pattern should repeat we could see a low around USD900 this yearwhere everybody will leave the boat….and then it will soar to USD 12,600 by 2020 (USD9,000 inflation adjusted) (even I do not believe it – it is just maths applied to the 1970s situation….and I hope not as it would means that all my nightmares would come true).

Whatever the outcome for gold – this looks like the mid cycle lull. Hopefully not hinting at a USD12,600 rally.

What you should do? Just be un-emotional. The gold position are meant to be an hedge, so just let it be.

A similar situation (previously discussed, so I do not delve in it…there is a specific post in early January ) in 1985/86 the oil went as low as USD10 …which would be now USD35. Then it recovered to the equivalent of USD65/USD75 and stayed there till 1993 (US invasion of Iraq)

By the way in the 1970s the stock market really got killed – and as usual in 1982 the big Investment banks where pumping article re The Death of the Stock Market…just at the beginning of the greatest bull market 1982/2003

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