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Gold echos the past

Watching gold yesterday was almost as explosive as the annual 4th of July fireworks display I watched in Bonduel this year. No one, of course, got hurt in the fireworks display.

I am not so sure about the volatile gold market.

Gold went up like a skyrocket and it lit up the bullion investment sky. By the close of regular trading in New York yesterday, the metal had set a record as the largest one-day price gain in terms of dollars, up $70.10. In percentage terms a day like this has not been seen since 1999, which you may remember was the lead-up to the Y2K problem that was going to happen to our computers when their internal clocks were to be thrown off when the year 2000 arrived.

Silver had a good day, too, rising by $1.178 to close at $11.64. This was the biggest one-day gain since 1979.

It is these references to the 1979-1980 boom that make me nervous. I remember what happened when the euphoria faded.

Gold went up from $742 on Jan. 16, 1980, to $803 on Jan. 17, 1980, up $61. This was on its way to its closing high of $825 on Jan. 21. On Jan. 22, it dropped by $155 to close at $670.

Manic upward movement was followed by manic downward movement in less than a week.

I cannot claim to know the future, but volatility works both ways. Even if the long-term uptrend in gold has further to run as many experts expect, short-term corrections can be wild.

That is the time when there is a big difference between being a long-term gold owner and a newcomer chasing headlines. Be careful.