The Phaserl


Gold Analogue: Then and Now

by Gary Christenson, Deviant Investor:

1970s: Gold rallied from about $35 in 1970 to nearly $200 in December 1974, and then fell to about $100 in August 1976.

So what?

Examine the graph of average monthly gold prices Jan. 1970 – Sept. 1976. Compare it to the graph of gold prices from April 2002 – October 2015. Note that the second graph was prepared with the same number of data points, but the time scale was doubled – each point is a two month average price. Note the similarity in form. The first is scaled $0 to $200 and the second $0 to $2,000.



What we see:

  • Gold prices increased by a factor of almost six from 1970 to 1974, and then fell by about 45%.
  • Gold prices increased by a factor of about six from April 2002 to August 2011, and then fell by about 45% from the peak.
  • Both the rally and correction in 2002 – 2015 took about twice as long as in the 1970s.
  • Subsequent to the 1976 bottom, gold prices increased by a factor of about eight in a massive bubble inspired by, among others, inflation worries, fear, and loss-of-confidence in government and central banks.

What does this prove?  Well … it proves nothing.  But it suggests a few observations.

  1. Gold prices can be amazingly volatile, especially when fear increases and a majority of people lose confidence in debt based fiat currencies, central banks, and politicians.
  2. If the analogue continues for several more years, we might see gold prices increase by a factor of five to ten into the $5,000 to $10,000 range in five to seven years (double the 3.5 year rally in the 1970s).
  3. We should not expect this analogue to predict gold prices, but we should NOT discount the possibility of a similar pattern unfolding.


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