Tuesday, July 27, 2010

Gold Hand-Down Favourite At Agora Conference

According to Peter Cooper, the consensus at an Agora Financial symposium has a fairly good track record. 2008's saw a consensus against stocks before the financial crisis erupted.

This year, the consensus is for gold. In a nutshell, the argument says we're in a re-run of the mid 1970s; inflation will come roaring back in a few years.
The re-run of the mid to late 70s school of thought is right. We have had the financial accidents of 1973 and 74, and the gold correction of 75. We are perhaps in mid-76, another very hot summer or was that 75?

The policy response to the financial crashes has not been so different this time. It took time in the 70s too for inflation to gather speed, and we saw a big deflation of house prices in 74-75. It is no different this time.

However, by 1977-8 inflation was picking up speed and it topped out in 1980 with gold at $800 an ounce – eight times higher than its correction in 1975. Adjusted for inflation then that would put gold at $5,000 an ounce by 2013.

We have not even seen the start of the ballistic up phase for gold. The past 10 years is only base-building for the rise to come.

Gold bug Jim Sinclair has $1,650 by next February and this forecast looks perfectly possible after the usual summer down for the gold price. Remember when he made that prediction the gold price was nearer $400 and then it looked outrageous....

The "new '70s" thesis is fairly credible if John Williams' alternate measure of inflation is used. At the very least, because his inflation-calculation methodology is the same as that used by official sources in the 1970s, it's the best metric for comparing this decade to the 1970s.


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