Gold. It is in the headlines. It popped higher by roughly $30 an ounce to $550 as this is written. It is exciting to see the market active again, to be hitting 25-year highs. Will it hit $850 and take out the 1980 all-time high? I don?t know, because it depends on your time frame.
I would expect that the the all-time high will be exceeded at some point in time. Inflation makes this a certainty. What is not certain is whether the market move will occur in 2006 or 2016. I have written in the past that the best thing for numismatics is a nice gentle upward slope in the price of gold.
Unfortunately, the hobby doesn?t usually get a nice gentle upward slope. We got a very disruptive upward ride from the 1976 low of roughly $103 to the $850 high of 1980 and then prices ran all the way back down over many years to just over $250. We are on an upward glide yet again. What is in question is whether we will see the doubling and redoubling that we saw in the late 1970s. If we are on that path, gold has two more doublings to go and it will do this in the next two years. That would take gold to over $2,200. This might happen, but for it to do so gold speculators need to lose all their inhibitions and innate caution and just start bidding higher and higher. This hasn?t happened yet, but we see the beginnings. If you follow gold stocks, you will know that Barrick is trying to take over Placer Dome. This information is not strictly numismatic, but you have to consider the mine managements as the insiders. If mergers are the name of the game, then it would be logical to conclude that they expect gold to continue to rise, thereby making the takeover investment pay off. This is especially true because of the reluctance of the Placer Dome management to be taken over.
Another thing that has to happen is a basic overcoming of coin buyer price resistance. Reports on the bourse floor of the FUN convention in early January is that bullion has risen too fast and the dealer profit margins on gold coins, especially bullion coins, were compressing. This means that the final buyer is not yet used to the idea of gold being over $500 per ounce and has some concern that prices may head downward instead of upward. As long as this buyer resistance is in place, I can say that the gold ride will not be too wild.
The good news, though, is this buyer resistance is about the healthiest thing that can happen to the gold market. The dangerous times are when you can?t find gold skeptics. This is something that is characteristic of a market top and is a clear warning signal.
Back when January 1980 rolled around, gold began trading at the 1979 close of $548.70. In just 14 trading days, it spurted to the all-time high. There were no skeptics to be found then. It looked better than real estate. However, the path of gold after the peak was to fall to $490 an ounce by April 3, 1980.
I don?t see gold escalating to new highs in just 14 trading days, nor do I see a plunge. I am on record as forecasting $650 gold this year. I can easily be wrong, because the old saying applies, ?If I?m so smart, why ain?t I rich??
Let?s just say I am smart enough to write this column and share my observations of the nature of gold?s past fluctuations. The current skepticism and market action seems to indicate that this new upward move in gold will be solid and will last longer than just a year or two.
However, I have always believed that the best way to take advantage of any move in gold bullion is to buy collector gold coins. I realize that not everybody can or wants to do this. If someone is determined to take a speculative leap with gold, I can say that it might prove to be very rewarding, but it could also be very dangerous to his or her financial health. There are no guarantees. My former boss used to write that you shouldn?t bet the monthly mortgage payment. I agree with him.
Gold?s current upward move has been a good thing so far for the hobby. Longtime buyers are earning some financial rewards. Gold is generating headlines that bring newcomers into the field. Best of all, my memories of a long ago time seem relevant again.