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Gold: Christmas Past And Present

December 21, 2011 by  

Gold: Christmas Past And Present

Gold prices have been undergoing a minor correction the past couple of months. I believe it is a healthy correction with higher prices for gold to come in the new year. However, I appreciate that very few people can take advantage of rising gold prices. Bullion has gotten too expensive and doesn’t have the upside it had a few short years ago.

One thing is certain: When it comes to gold and this Christmas, it is far different from Christmas 1979. During the closing days of that year, the gold bubble was about to burst. Over the next 20 years, gold lost 80 percent of its real value (accounting for inflation).

Of course, nobody thought gold was set to correct during the days leading up to Christmas in 1979.

I was lucky to get a firsthand look at the frenzy that was going on. I was a senior at the University of Calgary, and I was visiting my parents in Spokane, Wash., where my dad was publishing his newsletter.

The hub for it all was on the fourth floor of the Peyton Building, one floor above my dad’s office. The Spokane Stock Exchange consisted of one large room that had a blackboard on which an elderly man busily scribbled prices as brokers and a handful of private investors shouted out their bids.

The frenzy went on throughout the week before Christmas and became so intense that it was reported nationally on the CBS Evening News on Christmas Eve. That alone should have been a sure sign that gold and silver prices were close to a blowout. Yet I doubt one in 20 gold speculators — including my father, who was one of the three original gold bugs — saw it coming. (However, my dad, C.V. Myers, got his subscribers out of gold over the next year at an average price of $650 per ounce.)

I know that some of you are concerned that gold may have hit its high. Bullion prices are down nearly $300 per ounce from the all-time highs it set earlier this year. Yet the fundamentals indicate to me an even weaker U.S. dollar and higher prices for precious metals.

Consider today’s price of bullion of roughly $1,700 per ounce. That is twice the price of bullion right before the bubble burst. However, if you factor in the depreciation of the dollar over the past 32 years, you will discover that is not actually the case. For gold to eclipse its 1980 high, it would have to trade above $2,500 per ounce.

Another measure to determine gold’s relative value can be made by comparing gold to the Dow Jones Industrial Average. Gold is overvalued when it takes only one ounce to buy the DJIA. For instance, when the stock market bottomed out during the Great Depression, one ounce of gold at $35 per ounce bought a single share in DJIA. That relationship happened again in 1980 when an ounce of gold was $850 and the DJIA was under 800. By 1999, it took 40 ounces of gold to buy a single share in the Dow. And while today it takes seven ounces to buy a share of the Dow, bullion is seven times cheaper relative to the stock market than it was in the days that followed Christmas 1979.

The most powerful argument that the gold bull lives is the relative amount of bullion in the world compared to the number of U.S. dollars. The gold price boom three decades ago resulted in steadily increasing global production from 1200 tonnes annually to a peak of above 2600 tonnes in 1999. Production has declined slightly from this level to a large extent because the richest veins in the world, notably in South Africa, have been depleted. Since 1999, the world’s above-ground supply of gold has increased by about 2 percent per year. Thus, there is only 22 percent more gold in the world than there was 10 years ago.

Consider the huge quantities of U.S. dollars. As the graph below shows, since Christmas 1979, a standard measure of the amount of dollars — M2 — has increased eightfold.

M2 Money StockM2 has risen from $1.5 trillion in December 1979 to $9.7 trillion in December 2011. As you can see, the increase has been most pronounced since 2001, doubling in just 10 years. This was Washington’s reaction to 9/11 as well as the massive wave of fiat money created following the Crash of 2008.

The Fed Is Gold’s Best Friend

Gold investors can also count on the Federal Reserve. In 1979, under the new leadership of Chairman Paul Volcker, the Fed mandate was to protect the integrity of the U.S. dollar. Times certainly have changed. Under Fed Chairman Ben Bernanke, the Fed demonstrated repeatedly that it is more of a political tool than a central bank — at the ready to finance foreign wars and bail out big banks, major investment houses and even a couple of automobile manufacturers.

The Fed has been cutting interest rates in the midst of the worst dollar bear market ever. This would have seemed incomprehensible to Volcker and the Administration of President Jimmy Carter. In fact, Volcker helped kill the 1970s commodity bull by piling on higher and higher interest rates.

But today, America is inundated with debt. The United States has a debt load of nearly $50 trillion, or eight times more than our gross domestic product. And get this: More than 80 percent of this debt has been created since 1980.

Household sector debt, a large component of which is mortgage debt, now totals about $13 trillion. That comes to more than $42,000 per American.

Bullion Needs A Stock Split

The economy is looking sick and likely to get even weaker. That is good news if you already own gold. But gold has a very serious problem. It has become too expensive for all but the wealthy to invest in.

I started buying gold more than 40 years ago, and I have been writing about it for more than 30 years. I have yet to find a better leading indicator for America and the dollar.

A week ago, I contacted an old friend who is a reputable coin dealer. The spot price on gold that day was $1,660 per ounce. To buy an American Eagle cost the spot price plus $70, or $1,730.  If you were to sell that American Eagle back to that same dealer, you will receive the spot price, so you are paying a considerable commission.

With gold at around $1,700, it lacks the leverage it packed just three short years ago when it was under $800 per ounce.

I no longer recommend gold. I suggest investors hold the gold that they own, because I do think it will go somewhat higher.

As a practical alternative, I think silver is a good choice. Silver does not offer the protection gold does if the economy falls into a deflationary collapse, but I don’t believe that is going to happen.

If I am correct about how bad things will become, water, guns and ammo will be of much more use than gold, silver or platinum.

Yours in good times and bad,

–John Myers
Editor, Myers Energy and Gold Report

John Myers

is editor of Myers’ Energy and Gold Report. The son of C.V. Myers, the original publisher of Oilweek Magazine, John has worked with two of the world’s largest investment publishers, Phillips and Agora. He was the original editor for Outstanding Investments and has more than 20 years experience as an investment writer. John is a graduate of the University of Calgary. He has worked for Prudential Securities in Spokane, Wash., as a registered investment advisor. His office location in Calgary, Alberta, is just minutes away from the headquarters of some of the biggest players in today’s energy markets. This gives him personal access to everyone from oil CEOs to roughnecks, where he learns secrets from oil insiders he passes on to his subscribers. Plus, during his years in Spokane he cultivated a network of relationships with mining insiders in Idaho, Oregon and Washington.

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  • Sirian

    Gold and Silver have always been the best insurance policy, so to speak, any one could have. Especially now. Food, water, guns, ammo and a well centered bible faith will always stand ahead of gold and silver but if and when things finally collapse, having a reserve of gold and silver will be very, very helpful. Junk river will give you quite a bartering edge over a paper dollar. Which would you rather get in return, a gold or silver coin or a piece of paper? Need I answer?

  • FreedomFighter

    Might even make it past 3000 next year.

    The worry I have is this: With gold hitting highs will technology to extract gold from sea water finally come of age, pumping the water is the highest cost of such a system. Build a desalination plant and pumping is paid by water users and only gold extraction costs need be applied.

    Laus Deo
    Semper Fi

    • Walt

      Years ago I think I heard that every cubic mile of seawater contained a ton of gold. I hope my memory serves me right and it wasn’t 1 oz per cubic mile.

      What is this new technology to extract gold from seawater that you reference?

      • FreedomFighter

        Im not up on the extraction process but it involves ionization of the gold in the water, using an cheap easily separated agent of some type to bind to gold particals. Seperate the agent from the gold. From what I have read pumping the huge amounts of water was the biggest expense.

        Some other method may now be available more advanced.

        Laus Deo
        Semper Fi

  • Sirian

    Correction due – “Junk river” should read “Junk Silver”. My fingers can’t seem to keep up with my mind.

    • Old Henry

      Don’t worry Sirian, it’s your keyboard, not you.

  • home boy

    since maybe 1% of the population own gold and silver how will you be able to barter with it. if things get that bad , you better own a gun. people will just take what little you have if you can’t protect yourself. and that means alot of death’s in this country and in the world. is that really where you want to raise your children? maybe you should stop listing to man and turn to GOD’S words in the bible. read ezekiel 7;19 to see what is going to happen to gold and silver.

    • FreedomFighter

      If money becomes worthless or unavailable, but society is still partially working, and say you own your home:

      you will still need to pay taxes to keep your paid for home, or keep your car, or some other payoff situation. Things may not disintergrate all of sudden, it may be a slow cook off.

      Silver for food, silver for bullets, silver for medical care or gold as we transition into the next monetary system.

      Silver and gold to bribe, hire guns etc etc etc…

      Laus Deo
      Semper Fi

  • NoMoreMarxistsInDC

    Gold and silver are going to see a major market correction soon. Experts are saying that gold is going to drop by 50% and most likely will do that right before the next election for President. If Obummer is defeated, watch gold drop like a rock.

    • DaveH

      Why?
      There’s only one candidate (well, maybe two, if we count Gary Johnson) who is a threat to Gold’s current price level — Ron Paul. And even if Ron gets elected there’s nothing he can do about the outstanding supply of money that’s been pumped into the economy. It takes several years for price inflation to be manifested from increased money supplies, so even if Ron gets elected we’ll be seeing some pretty ugly inflation for years to come.

  • Henry Ledbetter

    JOHN Interesting Sad to say that water guns and ammo may be worth more than gold but I think you may be right. You might also add land to the equation. I may try to buy land that join:s our property. but may need some investors. Larry tried to warn all that would listen about the coming money crisis and I would try to warn them of their souls condition. I am of the opinion that many thought we were both a little tetched in the head but in retrospect, time is proving us both right. ” What would it profit a man if he gains the whole world but loses his own soul??? I wonder if Larry may have known you or your dad?

  • ib12541

    I like it when the metals prices are manipulated down. Isn’t it prudent to buy low and sell high? Why do you want the price to go higher when you’re trying to accumulate?

    Go to https://silversaver.com/share/43JNH and buy your metals on a dollar cost average basis for as little as $25/week or $50 month.

    Yes, beans, bullets and bandaids are important and should be accumulated but you should definitely protect your wealth with metals as all paper fiat will reach its real value (zero) very soon.

    Good luck to all…

    • s c

      ib12541, for some reason, very few people think or admit that gold prices can be and are manipulated. Gold, like anything else, is a tool that gets used and abused, and it is that manipulation that helps prove that America’s free market economy works when it’s left alone.
      You can bet that central bankers and various ‘insiders’ around the world are to blame for gold’s waffling performance. They have a vested interest in protecting fiat money, as gold interferes with their ability to rape America’s wealth via the vicious lie known as “full faith and credit.”
      It shouldn’t come as any surprise to learn that central banks have been busy buying gold recently. It seems that their faith in fiat money just isn’t what it used to be. Do you think they’re telling us something?

  • Old Henry

    “If I am correct about how bad things will become, water, guns and ammo will be of much more use than gold, silver or platinum.”

    My goodness John! You’re beginning to sound like the rabble-rousing rednecks such as myself who hang our here!

    Sir, you are dead on.

  • http://bobLivingston Power to the People

    Go to any gun show and watch patrons buying ammo by the cart loads. Sad state of affairs we find ourselves in today.

    I too advise that you stock up on batteries, propane, can goods, water, medicine, purification means, guns, ammo, reinforce your security, junk silver for barter and for me…whiskey.

    Good luck everyone….we will need it!

  • Joel S. Gehrke

    Trading commodities based on ideological convictions or religious sentiment is very, very unwise. Every argument that is being made for the continued rally in gold was feasible when the gold bubble burst back in 1979-80.

    So, for the record: Gold is no longer an investor’s commodity. It’s a trade. And right now, it’s a short trade to 1447. Anyone who buys gold north of there is a sucker.

    Fundamentally: What does it tell you when you see people dumping gold in order to buy US dollars? It means that people are placing a higher value on liquidity than on value preservation. When people are afraid, they buy gold. When the world actually ends, you want dollars.

    • Firefly

      What is coming is not likely to be the end of the world (yet) but it WILL CERTAINLY SEEM LIKE IT TO MANY. Gold took a dive because the BIS, the BOE and the FED drove it down. If you want something that will go up with no chance of loss you might consider non-perishable food with a 10 to 30 year life expectancy (if you store it properly). It’s price will likely triple long before this decade is over. However, over 60 of 65 major writers on precious metals all believe gold will reach $2500. One says $10,000 but it that happens the country will be in a shambles. I have no idea on that but I’d rather have farm land with a source of water if I was rich and a good supply of food storage if I was poor.

  • Lena

    I don’t know where all this doom and gloom is coming from. I think a few too many of you have been watching a few too many conspiracy theory videos online. Buying guns and ammo? Oh and don’t forget your bibles! Those will come in real handy! Sure own a gun for safety but don’t let your kids blow their heads off! Are there some tell tale signs of the end coming or has their just been too many zombie movies released in too short a time span?

    Buying gold is smart. So when the world actually does inevitably end the way you have all predicted you actually have something to trade with instead of some dinky card that used to have your life savings on it. Or maybe just buy guns and ammo so everyone can kill everyone else and bring about a quicker end to mankind. Hopefully by the time this ending of the world thing happens humans will have evolved (Gasp! I said evolve!)into more peaceful creatures. Parents will have raised their kids not to want to kill everything to solve a problem. One can only hope.

    • DaveH

      Maybe, Lena, if those parents raised their kids to recognize that Theft is still just Theft when they vote for Government to do it for them, those kids would feel no need to be violent towards others.

    • Sam

      Sorry Lena but there is a reason it’s called a Rat Race. A psych experiment done years ago with rats showed that when a population of a species gets to our level. The words that should start scaring people are ” Zero population growth ” That is when the really heavy violence and canibalism started in the test subjects. So it ain’t looking too good right now on us being the dominant species for too many more years. The Government and the 2 predominant religions have outlawed the herbs that may have helped us to evolve to the point that you had hoped for.

    • Meteorlady

      So Lena – I own guns because I like to shoot skeet and I like to hunt. Your view is naive. Here’s the deal… if we don’t spend another cent on any new programs or create any new government agencies, plus keep income levels for the government at current levels….

      The GAO estimates that by the year 2021 we will be paying $1.4 TRILLION in interest on the DEBT that we owe as a nation. By 2046 all we will be able to do is pay the interest on the debt – no more government because we won’t have the money for it. The fall in inevitable because each of us now owe about $40,000 per person, including your children and grandchildren. We can’t ever pay that back unless we get rid of a lot of the Federal Government programs and agencies.

      The Federal Reserve is printing money at record rates and prolonging the fall that is likely to come AFTER the next elections. If they cannot get that money back out of circulation we will be looking at massive inflation and a dollar that is hugely devalued. How do you think people will react when they have to pay $25.00 for bread and $50.00 lb for meat?

      You can advocate peace all you want, but when I have something that my family needs like food and shelter and someone comes to take it away you can bet I’m going to defend my family with my guns. That’s what people do, protect their source of food and their family. I’m not violent, I’m the most non-violent person there is, but threaten me or my family and I’m no longer passive.

  • Birdeo

    Ezekiel 7:19 has to do with “…in the day of the wrath of the LORD…”; read the context.

  • Vladimir

    Lena, human’s nature hasn’t changed much last 8 million years or so. Many totalitarian alitists tried to engineer socially human nature (Hitler, Stalin, W. Wilson and FDR, just to mention a few) but ultimately failed. THus, hope as much as you wish for the better but get ready for the worse. Having stored MRE food, water, gund, ammo and precious metals cannot hurt you but might save lives of your family. Be reasonable. Are you counting on the Big GOvernment’s help? They’ll be busy saving their own arses.

  • Cas

    Joel S. Gehrke says:
    Re:- “When the world actually ends, you want dollars.”

    Why would anyone want Wheel-Barrels full of worthless dollars??.

    The World Ended for the Weimar Republic…alot of “good” those dollars did them, right??…Oh, I forgot, they did use Stacks of them to stoke the hearth fires with.

    The World ended for Venezuela & Brasil & Mexico every time they Froze Bank account access, safety deposit boxes, & ended up chopping off zero’s or re-issuing currency.

    Call me a Loonie (I am Canadienne, tho) but the last thing when the world “Ends” that I want to have or hold are stacks of devalued or even re-issued Dollars.

    The Iraqi Dinar tied to Oil would be a better bet since there is a move to divest away from the U.S. Dollar being tied to the price of a barrel of oil now-a-days.

    I’m thinking the Yuan, Loonies, Dinars, maybe, but certainly not a “Dollar”.

    Thing is??, The USA has never been in this type of situation before whilst other Country’s (Latin & South America Recently & Europe previously) HAVE with respect to Currency devaluations, reissues & re-sets.

    I’d be a quick study of those other Country’s as to what to expect for the U.S. Dollar.

    I’m thinking there’s no other way for the USA to get out of its massive over-leveraged Debt except to default, renegotiate, & re-issue /reset the U.S. Dollar & Currency.

    The Dollar is in a very weird “weak bubble” that is about to burst.

    As an example:-
    I’ Quad-lingual (French, English, Spanish, Portuguese Speaker) & YET as a Technical Support Analyst was laid off in 2009/10/02 from CSC.
    I had $55,000.00 Credit Card Debt owed to BoA, Discover, Chase, GE Capital & Finance, PayPal.
    I Wrote a letter stating that at Age 50, I was not expecting to re-gain employment in this economy any time soon (I have not to this day) & that I was not able to pay what I previously had been furiously trying to pay off as debt.

    I sent it to each of the Creditors & to make a rather interesting long story short?. I settled $55,000.00USD of Unsecured Debt (Much like the U.S. Debt is) with the Creditors for a total sum of $12,000.00USD

    “Paid as Agreed” with some 90 Day No Pay’s on the report.

    THAT is when I realised that the USA was perhaps either in-advertantly or with purpose heading to do the same thing with its creditors in the future….just some thoughts.

    It might shake out with the creditors being really mad & making all those Threats (As myne did to me for 3 months or so), however in the “End of my world” Scenario??.

    I cut all indulgences, I settled the debts for a negotiated drastically reduced sum, I sold all the extra crap I didn’t really need & now I am still Unemployed but certainly debt free & living a bit Six Sigma lean, thankfully so for the experience..

    Preparation for the inevitable is key.
    I would not be any where near Dollars, tho’ what do I know except for Multi-lingual Computer Tech support on a Resume’s that has yet to garner me even a single interview??.

    • Concerned

      So did you get to keep all the stuff you bought with the $55,000 after you stiffed the people who lent you the money to buy it?

      • Cas

        Re:- Concerned says:
        December 21, 2011 at 1:48 pm
        So did you get to keep all the stuff you bought with the $55,000 after you stiffed the people who lent you the money to buy it?.

        Actually, no “stuff” was Bought with the Credit lines, frankly.

        I used the credit & helped out a few people who were less fortunate than I was believing that there would be ample time to repay the debt since there was just no way a “Leveraged” multi-lingual College Educated & Degree’ed employee like myself at big Company like CSC would ever lose a job that I held for the previous 5 years with Customer service awards & the like.

        My Car is a 1980 VW Scirocco….Bought & paid for when I was out of High-School.

        Yes, I still HAVE IT, and I still DRIVE IT.

        I live in a very modest >1000 Sq. Ft. Condo where the HOA’s are MORE than my 15 Year Mortgage (On which I only owe 8 more years).

        I shop at Thrift stores. I live very well below my means….even now.

        So, what about that “Stiffed” issue???.

    • Carolyn

      I believe Cas said he/she sold a lot of the stuff to help pay off some debts. Since debt is phantom because the money system is phantom, I applaud him/her for what he/she accomplished regarding the “debts”.

      What I don’t understand is why someone so educated and “quad-lingual” can be so under-educated regarding proper punctuation.

      • Cas

        Carolyn says:
        Re:- “can be so under-educated regarding proper punctuation.”

        Bad habits, very bad habits.

        I actually do not know where I adopted the strange use of CAPS where they do not rightly belong.

        It’s much like smoking & the “educated”…most know that it’s not good on either wallet nor health…yet, they still indulge.

        Please forgive me for the punctuation.

        As to the quad issue, it’s not an educated acquisition but rather a mere cultural conversational adaptation.

        Cheers for the courtesy of correction… =)

      • libertytrain

        wow carolyn, how can you be so very small to harp on that…good grief.

  • Mike

    Cas, I think what Joel meant by his comment on holding dollars when the world ends, what he meant was there is no time dollars are worth holding. When the world ends it would not matter if you had dollars because you are DEAD. So unless you are DEAD you should never have dollars.

    • Joel S. Gehrke

      No, Mike. I meant that Gold has put in an important top and that it’s a long term sell.

      • Mike

        I think the dollar put in a long term top in 1913 and it is a long term sell. We’ll see whose right when the world ends. HA.

  • Joel S. Gehrke
  • bob wire

    The GOP is coming undone today, they have painted themselves in a corner and started eating on each other. Handing the presidency over to Obama and doing the dying cockroach dance.

    And I guess Bob Livingston and staff are having a Christmas Party or something.

    As today big-doings on the Hill are ignored.

    If I was a writer, I guess that I too would have non-time sensitive material to throw on those days I just didn’t want to produce.

    But really guy! This is no time for soft material. Much is afoot!

    The GOP boomerang is on the return flight and someone is going to be very surprised where it lands.

    • s c

      b, who gives a *^#+ what happens to ‘Republicans,’ RINOs or neocons? What I’d like to know is WHY utopians refuse to understand that conservatives are not to be lumped in with ‘Republicans,’ RINOs and neocons.
      HOW can 1 + 1 be that complicated? You seem to think conservatives have a use for a utopian ‘Big
      Tent.’ What works for you and your chums is poison to us. At some point, your knowledge of the English language has to get better.
      This point has been put forth and explained MANY times, and utopians STILL don’t get it. At some point, utopians will manage to ‘get it,’ or you’ll have to admit that you have no reason to try and ‘get it.’ A Dick and Jane mentality or 1 + 1=whatever can’t be used as an excuse forever, b.

  • Meteorlady

    I have a little gold and a bit more silver. I have mostly ammo, guns, food and water. Alcohol and other items that will supply me with items to barter for item I need. I grow a garden have fabric in my closet and a good sowing machine with a treadle. I can hunt and fish so I’m good for about anything right now.

    Meanwhile the little liberals in the cities will be sitting on the curb waiting for the federal government to come bail them out. When they decide that isn’t going to happen the looting and riots will begin in earnest.

    • s c

      Meteorlady, when America’s stuff hits the fan, utopians and all other dreamers can point their fingers at America’s public education system for shaping their opinions and limiting their ability to distinguish between crap and prime rib.
      It would almost be worth it to see the looks on their collective faces when they finally understand that their icons and their political gods LIED to them for so many decades. On the other hand, they CAN’T say they weren’t WARNED.

  • David

    Please tell me why gold sellers are willing to take my paper money for their gold, which they say is more valuable than my paper??
    Sincere thanks
    By the way, I have heard glenn beck say that gold has “intrinsic” value. I suggest that nothing (no-thing) has intrinsic value, only the value we assign to it.
    Thanks again

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