John Myers compares 1970 gold rush to now
STOP WORRYING!
Bull markets, and I mean true and lengthy bull markets, must have a
base from which to build. I don't care if we are talking about the
S&P 500, the price of gold, or the price of silver.
Consider the great bull market in equities that stretched from 1982
to 2000. I can remember the widespread worry during the first few
years of that market and how many thought the Dow Jones Industrial
Average's climb from 800 to 1,500 was a bear trap. Some trap! If
bear markets are so sneaky that they cause the price of an investment
to nearly double, tell me where I can buy into one.
Bear markets just don't act like that, but it is true that bears are
very clever trappers, inviting the bulls back out with a glimmer of
hope only to then slam the door again. That is not what we have seen
with gold, however.
Look at a one-year gold chart, and you'll see the long-term trend
line for gold was established in November 2000. Back in the fall of
2000 we figured that we were getting a terrific bargain on gold
stocks (and other natural resource stocks). It turned out we were
right. While the major stock indexes have plunged since 2000,
commodity prices have risen. The last time that there was a sustained
period where stock prices retreated and commodity prices rose was in
the 1970s. And today there are some surprisingly similar political
and economic events to the ones that drove the price of gold up by
more than 2,000%.
Then: The federal government was fighting off a recession, and
deflation loomed across the economic landscape. The Fed slashed
interest rates and the U.S. Treasury began to increase the money
supply by more than 10%.
Now: The #1 priority for President Bush is to stop the economy from
sliding further. The Fed has slashed interest rates while the
Treasury is increasing the money supply at a double-digit rate for
the first time in 25 years.
Then: Trouble was brewing in the Middle East as Israel and its Arab
neighbors were gearing up for a war that could drag the United States
into the conflict
Now: Iraq is the hot spot, and the United States looks certain to
enter into a land battle. Once again, Arab nations are on the other
side of the fence, dead set against U.S. military involvement.
Then: Gold made a long and laborious move after its price was set
free. In January 1975 gold hit $100 for the first time. The party
was on. Two years later gold reached $200 an ounce. Then came the
consolidation. Yet by 1977 gold was down 50% from its highs. Wall
Street jumped on this price collapse, saying gold was an archaic
investment and not part of the modern world.
Now: Gold takes the investment world by storm rising from $280 to
nearly $330 -- a major reversal after a two-decade-long bear market.
After hitting $330, gold begins to correct. And once again, Wall
Street reminds investors that gold is an arcane investment even as
Big Board stocks fall in a bloody bear market.
Then: Patient investors believed that the economic and political
fundamentals would result in a weaker U.S. dollar and a higher price
for gold. They were richly rewarded for their persistence.
Now: Patient investors believe in the fundamentals of another gold
rally. My expectation is that we,too,will be richly rewarded.
Bottom line: Hold your ground. The fundamentals for gold are still
there... just like in the '70s and '80s.
Yours for a golden future,
John Myers |
