Question, asked by a novice investor:
"Is gold really the ultimate 21st Century bargain?"
Answer, given by the financial mainstream:
"Is the sky blue? Is the sun hot? Are Yankee fans happy to be alive?"
Kapeesh; we get it. According to the usual experts, Gold is officially the eighth wonder of the world, with prices containing more upside potential than a World Series fly ball. Here, these recent news items capture the bullish buzz surrounding the precious metal:
- "Gold $2,000."(AP) AND -- "NIA Says Gold Could Rise to $5400. It looks like this breakout above $1000 could be permanent." (Reuters)
- "High Gold Prices Here To Stay... The gold market has spoken loudly and definitely in the longer run." (Forbes)
- Gold prices are still 53% below their inflation-adjusted 1980 peak. "Even at above $1000/ounce, gold still looks cheap in terms of other financial assets." (Bullion Vault)
- "Bargain hunting boosted gold futures. Prices below $990 have increasingly been seen as a buying opportunity." (Wall Street Journal)
- "Gold Prices Show No Signs Of Slowing... Analysts say there's little standing in the way of more advance. The only way this doesn't continue would be a stronger dollar. I can't find anybody out there that is saying that is going to happen." (Associated Press)
Question: If the majority “can’t find anybody out there” who sees an end to gold’s bull run (and by proxy, the dollar’s bear run) -- then who’s left to buy?
Here’s the deal: Other than a growing belief in a coming era of inflation (unfounded, because both consumer and bank credit are contracting) -- there is no actual evidence to suggest that gold prices are cheap. In fact, quite the opposite is true.
To wit: In the October 19 Elliott Wave Theorist, Bob Prechter presents this groundbreaking chart of Gold prices since 1913 versus the purchasing power of the U.S. dollar (as measured by the change in the CPI, Consumer Price Index).
To summarize the picture: Since 1913, the purchasing power of the dollar has fallen 96%. To match that loss, gold should be up 25 times from its pre-1934 fixed value of $20.67.
It's not. It's up 50-times. On this basis, gold is 50% overvalued.
In Bob Prechter’s own words:
"A gold buyer today must be really convinced that inflation is going to take off in order to justify buying at today's prices. Of course, buyers today are convinced that inflation will rage, just as they were convinced that inflation was no threat at all back when gold was at $253.”
Bob goes on to reveal a major development in the relationship between gold and silver prices, AND a possible game-changing event in the current price chart of gold-mining shares.