Mining.com/Michael Allan McCrae/10-14-2016
“Traditionally those long bear markets for commodities average about 20 years—and that is using data back to 1800—and we are only in year five.”
The more things change, the more they stay the same
It should be noted that Wells Fargo’s John LaForge saw $660 per ounce as “in the cards” in October, 2014. At the time, gold was trading in the $1200 range. Since then it got as low as $1060 in December, 2015, but no lower. In January, gold’s turnaround began and it hit an interim high of $1366 this past July. So, at best, LaForge on his earlier prediction was off the mark by $400 at its low and $706 at its high.
Now, with gold trading in $1250 range he is back with a new prediction. He has adjusted his downside target to $1050 – $390 higher than his last target to the downside. One wonders what happened to force the upward adjustment from his original $660 target. [??]
LaForge thinks gold is caught up in a commodities bear market that began five years ago and that is why it is headed for $1050 per ounce. There are a couple of flaws in this analysis as I see it:
— First, if there is one area of significant disagreement among analysts, it is on the nature of cycles – when they begin, when they end, how long they last, where we are at present in any particular cycle, and whether or not current cycles under a fiat money system can even be compared to cycles when we were on the gold standard. And that covers just the high points. In short, with so many moving parts at play, LaForge could be right in his assessment, or he could be absolutely wrong.
— Second, and more importantly, one can put gold in the same container with the rest of the commodities if one so chooses, but is that a valid, or better put, workable classification given gold’s other prominent function as a safe-haven asset? In the disinflationary years from 2008 until present, for example, gold went from $680 to $1800 at the top and trades at $1250 now. In the same period, the Bloomberg Commodity Index (Click the “10y” tab) went from 233 to 85. Commodities collapsed while gold went significantly higher – a clear indication that gold and commodities should probably not be thrown in the same hopper.
I am reminded of an old Murray Rothbard quote that I first encountered when I entered the gold business in the early 1970s. He included it in the intriguingly titled pamphlet, What Has Government Done to Our Money:
“All pro-paper economists, from Keynesians to Friedmanites, were now confident that gold would disappear from the international monetary system; cut off from its ‘support’ by the dollar, these economists all confidently predicted, the free-market gold price would soon fall below $35 an ounce, and even down to the estimated ‘industrial’ nonmonetary gold price of $10 an ounce. Instead, the free price of gold, never $35, had been steadily above $35, and by early 1973 had climbed to around $125 an ounce, a figure that no pro-paper economist would have thought possible as recently as a year earlier.”
As you can see, even when gold was trading at $35, its adversaries were predicting lower prices ($10 per ounce), and even then under the flimsiest of arguments. Its ‘industrial” nonmonetary price? How is that different from its monetary price? Ultimately in that first leg of gold’s long term bull market, it went well over $800 per ounce – a far (very far) cry from $10!
The lesson in all this? The more things change, the more they stay the same. Gold’s critics have not changed their tactics over the years, and they are not likely to anytime soon. Make your own assessment on gold and develop a strategy that makes sense for you. The worst thing you can do if you don’t own gold, or don’t own enough, is to allow yourself to be sidelined by predictions that may or may not be based on a realistic assessment of the markets, gold and the economy.
By the way, for those with an interest, you can still access What Has Government Done to Our Money at the Mises Institute.