Tuesday, June 12, 2007

Gold Market #5 - Discussion of the Gold Cycle and a Comparison to the 1970s

The following comments come from a South African investment advisor via The Big Picture concerning the gold cycle. The original article contains some good tables and graphs that proves the points made below.

Analyzing the 1971 to 1980 gold bull market, price data show that the first phase from 1971 to 1973 was largely on the back of a weakening dollar, whereas the period from 1974 to 1978 saw increased investment demand, with gold rising in all currencies.

It would appear that we are seeing similar action in the gold market in the current cycle. Although we are all quite familiar with the movements of the dollar gold price, the trend of gold expressed in other currencies receives far less publicity. . . . bullion has been making solid headway since the middle of 2005 in most major (and minor) currencies.

. . . . the bull market in gold that commenced in 2001 goes beyond being only a reflection of dollar weakness. The fact that bullion is rising in all currencies probably points to two aspects, namely: (1) an increasing despondency with paper money, and (2) rising global investment demand for the yellow metal, including more than a modicum of interest from central banks starting to spread their US dollar foreign reserves around.

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