Wednesday, March 11, 2009

Hey Gang, Is That a Double Top in Gold?

Accumulation and Distribution. It was ever thus. The conspiracy wing of the goldbug camp is starting to get louder-gold only goes down because of manipulation. Central banks, Goldman Sachs, Queen Elizabeth, the Rothschild's etc. Who knows? Without volume information it's a bit tough to divine much from the price action (although Lord knows I've tried). I've found it easier to use gold's moves as part of the currency/inflation picture rather than as some mystical intrinsic good (or evil).
The first chart is from Kitco:

And from EconomPic:
Gold... Has It Really Stored Value?

In response to yesterday's inflation adjusted S&P 500, we were asked:

Could you present the same plot but with inflation-adjusted gold overlayed on the data? It would be interesting to see if stocks really do outperform over the long-term...
Over the past 34 years, the price of gold is only 25% higher in real terms.

Compare this to yesterday's chart to equities...MORE

The answer, I've come to believe, is yes gold does store value.
It does not, however, produce wealth. The first point is well made in The Golden Constant: The English and American Experience, 1560-1976*, by Roy W. Jastram, late professor of business at the University of California, Berkeley:
"Gold maintains its purchasing power over long periods of time, for example, half-century intervals."
The second point is as well made by Econompic as anybody, plus it's in color.

*The book has been out-of-print and commanding $4-500 second-hand. In April it will be re-printed by Edward Elgar Publishing, with new material and updated to 2007. It's priced at
£71.96 .