When measured in US dollars, euros, sterling or Aussie dollars gold is now well past its 1980 highs; only when denominated in yen has it yet to reach its peak from three decades ago. In particular, the rise in bullion’s value in euro or sterling terms over the last couple of years is parabolic, approaching vertical. All in all, an initial glance at Royal Bank of Scotland’s chart might suggest that it’s time to sell your gold ETFs.
When adjusted for inflation, however, gold is still nowhere near its 1980 peak. Here’s a recent chart of the gold price restated to reflect US consumer price inflation, as calculated by Doug Casey of Casey Research in the US.
Moreover, if you restate the Dow Jones Industrial Average of share prices in gold terms on a long-term (110-year) chart, we’re in neutral territory. And on a medium-term (15-year) chart, it looks as though gold might be about to start another leg up in equity terms – or equities are about to start another leg down in gold terms. The charts are taken from here.
The chief executive of a leading gold ETF provider recently told me that he thinks the precious metal’s bull market may have another five or six years to go. We’ve still to get into the final mania stage of mass public participation, in other words. This makes sense to me. As the astute Merryn Somerset Webb pointed out a few months ago, while it’s true that gold has entered the public’s consciousness through television ads, the ads are encouraging the public to sell their gold, not buy it.
“Sell gold” on a google search brings up 210 million pages, “buy gold” about a quarter of that total. Substitute “shares” for “gold” on the search and you get the opposite, a 5:1 ratio in favour of sites helping you to buy.
If we are indeed yet to enter the mania phase for gold, then exciting times are ahead for bullion holders, despite today’s rise to all-time highs in terms of most fiat currencies.
The final, mania stage of market booms tends to be characterised by increases in fraud, though, so it will pay to be cautious in how you play it.
Ultimately, as a commentator on the FTAlphaville website argued earlier today, “you will know that gold's run is up when we get some serious politicians and regulators who implement policies which will actually work to rein in the banks and government debt. That's when you sell your gold. Until then, hang on for the ride!”