Depending on which source of data you consult, there is disagreement over whether the highest spot future Comex Gold close in (December) 1987 was a little over or just under the $US 500 level. There is no doubt about the highest London PM Gold fix of 1987, through. It was $US 499.75 on December 14, 1987. On December 1, 2005, the London PM Gold fix was again $US 499.75. On December 2, it was $US 502.50. We are now definitely in $US Gold price territory unvisited since early 1983.
As we said on this page two weeks ago: "The last time Gold closed below $US 300 was April 9, 2002. The last time Gold closed below $US 400 was September 9, 2004." It's much too early to say that the last time Gold closed below $US 500 was November 30, 2005, but we do have $US 500 plus spot future closes on the first two trading days of December.
As you can see, it took Gold just under two and a half years to climb from $US 300 to $US 400. So far, it has taken half the time - a year and a quarter - for Gold to climb from $US 400 to $US 500. Even if Gold does "trespass" back into the $US 400s again before it consolidates this move above the $US 500 level, the second $US 100 move in this bull market is going to be much quicker than the first one was.
On a wider level, it is invariably the case that the upmove which ends a bottom formation or trading range is much slower than the one which began it. And it is generally true that the longer that bottom formation or trading range is intact, the greater the discrepancy between the two moves. Two weeks ago, we devoted our analysis to the HUGE $US 300 - $US 500 range in which Gold has traded ever since February 1981 when it was on its way down from the $US 850 all time high set in January 1980 to the bear market bottom just below the $US 300 level reached in June 1982.
Spot future Gold closed at $US 296 on June 21, 1982. Seven months later, on January 18, 1983, it had soared to $US 502. That move established the $US 300-500 trading range which Gold has been in ever since - except for the "undershoot" from late 1997 to early 2002. At the beginning of this huge trading range, Gold zoomed from $US 300 to $US 500 in seven months. Now, at the END of the trading range, it has taken Gold nearly four years to make the same journey.
Looking at the entire period from early 1981 to the end of 2005 during which Gold has traced out this huge $US 300 - $US 500 trading range, it has indeed been quite a journey. A typical "mainstream" analysis published on Reuters on December 2 is headlined as follows: "Gold's rise seen pointing to mild inflation".
This is absolutely hilarious. Compare the money supply numbers of 1980-81 with the money supply numbers of today. Consider the fact that in early 1981, Treasury funded debt had yet to top the $US 1 TRILLION mark while today it is more than $US 8.1 TRILLION. Almost 90% of all the US government funded debt in existence has been borrowed since early 1981. Yet, according to the Reuters article, the Gold price is pointing to a "mild" inflation.
Please do read the article though. It is very interesting, especially because of all the dark fears it reveals in the denials of those questioned:
"Upward (Gold) prices are unlikely to match those of 1980."
"No indications exist that inflation will return to the levels ... of the 1970s."
"Present conditions certainly don't portend a return to early 1980s-style inflation levels."
We certainly concur that present conditions are not like those of the 1970s and early 1980s. They are in fact many orders of magnitude WORSE. The foundation is smaller - the Central Banks hold less Gold. The financial structure is grotesquely larger - all of it manufactured by issuances of credit. All of it based on promises to pay.
Today, measured by the increase in Treasury debt alone, inflation properly defined as an increase in the stock of money is more than eight times as high as it was in 1981. What has reflected this eightfold increase? US stock markets have. So, to a large extent, has US real estate. Gold meanwhile is now back to the same level it was in early 1981. The $US Gold price does not reflect this increase in inflation at all. Not yet, anyway.
But now, Gold has reached a level where it is about to BEGIN to reflect the gigantic inflation of the past quarter century. It has reached the TOP of the trading range in which it has traded over the past quarter century. It is a well-known but largely unadmitted fact that the price rises which have reflected the inflation since 1981 have been all but exclusively in the realm of financial (stocks, bonds, derivatives, etc.) assets - until very recently. Now, with Gold emerging in more and more analyses as a competing CURRENCY rather than a "barbarous relic", the focus is changing.
That's why the old chorus of "THIS TIME IT'S DIFFERENT!! is growing from investment analysts, almost all of whom are analysts of financial (that is - DEBT BASED PAPER) assets. We repeat the refrain:
"Upward (Gold) prices are unlikely to match those of 1980."
"No indications exist that inflation will return to the levels ... of the 1970s."
"Present conditions certainly don't portend a return to early 1980s-style inflation levels."
Well, that's all right then. But if today is nothing like the 1970s and early 1980s, why keep talking about them so much? These are dark fears coming to the surface, propelled there by a Gold price of $US 500, something which simply was not supposed to happen ever again.
Well, it's happened, and it now remains to be resolved how big a "stumbling block" $US 500 proves to be for Gold. We will certainly know by the end of this year if the TOP of the 25 year trading range is going to hold Gold back for a while - or not.
PS: We were casually browsing the Kitco Discussion group yesterday when we were hit between the eyes by the posting below. We haven't laughed so hard in weeks.
"Obviously, now that gold is over $500 we need something else to talk about!"