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.
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.
- 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.
- 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).
- 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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