Big dip for gold?

JamesU

DiggerUK wrote: »

James U,
Using the BOE inflation calculator +current RPI, you find that gold should be between 725GBP, and 1240GBP today. So at an LBMA fix of 788GBP today, it is in the range of the inflation adjusted high and low price in 1980.

There was a low price in 1980 of 216GBP you know, as well as a high of 370GBP, the point being emphasised in this here thread, is that there are highs, as well as lows, in gold price!!!

Digger, Based on what STT mentioned previously with devaluation in Sterling when leaving the ERM, not sure how to compensate for this within the inflation adjustment on the UK side. However some time ago, we did evaluate Uk gold prices together based on sovereign prices with reasonable accuracy using UK prices adjusted to RPI and from memory, I think we came to the conclusion that between 1977 and 2010 gold rose about 1-2%/yr above inflation on average over the time frame (if I find the thread, will link it to this post).

The chart below shows gold price in $ terms when adjusted for US inflation. Easier (at least for me) to evaluate things properly sticking to $ and omitting £ gold prices due to £/$ exchange rates, £ devaluation with leaving ERM etc. And in this chart, gold needs to reach approx $2400/oz before we reach the 1980s highs (as STT mentioned previously). For those who invested during the last bubble, so much for the use of gold as a store of value. For sure, highs and lows and a bubble along the way, gold volatile. But if you get the timing wrong when you buy gold, it could be a very long time before the value is recovered.

DiggerUK wrote: »

Today is still a good day to buy.
Trust me, I'm bonkers.

Rationale seems to be it is fine to buy gold right now because when adjusted for inflation, gold price is not yet at the height of the last bubble in 1980. I am not sure if this is a good rationale. As in my previous post, the curent gold prices look like another bubble to me.

sabretoothtigger wrote: »

You are wrong on that point because that graph isnt considering inflation, the 1980 price hasnt been exceeded yet as far I can remember its along the lines of $2700

STT, in your post you mentioned competing parameters that effect gold price (inflation, currency devaluations, currency exchanges.... all correct of course), I find it easier to evaluate if simplified with $ and US CPI I guess.

In last post, for sure the chart did not account for inflation. This chart is in $ terms adjusted for inflation (I assume this is US CPI adjusted), and as you say gold spot would need to be around $2400 in todays terms to recover from the 1980s bubble when adjusted in line with US inflation:




So buying gold at the height of the last bubble, 20 yrs to recover it's value (excluding inflation), and still not yet recovered in value if inflation is taken into account. Not a pretty picture for those who purchased gold during the last bubble really.


JamesU

Jonbvn

DiggerUK wrote: »

Jonbvn,
you miss the info in your graph. Knock out the 1980 spike and you have a fairly nothing track in gold price from late '79 to '05. In your graph it is in the high 300USD for most of that period.

Sorry but you missed the point.

I was refuting your point about printy printy since 1945. The graph did that.;)

ledster

I've just sold krugerrands in the belief that the gold price is high at the moment and will, at sometime in the future, be much lower. At that point I was planning to use BV to buy back the gold. BV looks to be simple enough to use but you're description of them as 'Mickey Mouse' puts me off. Can you explain your opinion?

sabretoothtigger

Gold is at the top of an ascending channel, so its a relative high and also near an absolute nominal high. Problem is you can never tell when dollar might fall and push it up even further

would need to be around $2400 in todays terms to recover from the 1980s bubble when adjusted in line with US inflation

I dont take peaks like that as reliable usually. So I'd call it 1800. If all this recent fear is correct it will be surpassed anyway



Heres another inverse factor to gold price. If its to serve as money bonds must fail as a market, normally they would be superior as they return capital + interest and gold does not.
See stephanie flanders for discussion on it, main point is the first column has uk at 13.3 years and therefore most secure
but usa debt profile ( ie. dollars ie. gold) is worse then greece even




Also PIGS CDS pricing http://www.cnbc.com/id/38451750