Post by
nagyonokos4 on Apr 21, 2005 2:59pm
From The Slanker Report
Is Gold Moving to a Higher Trading Level?
It’s not just gold, but the entire commodity complex that’s
on the move. Gold is money, but to be money it must be a
commodity first. (For anything to be “real” money, it must be
universally recognized for being valuable, homogeneous, divisible,
a measure of value, a store of value, and a standard
for deferred payment.) Gold’s value in terms of all other
things, like all other things, is governed by relative value.
What gives all things value is man’s labor to grow it, gather it,
dig it, pump it, make it.
As measured by constant dollars, commencing in 1974
commodity prices fell steadily until
they bottomed in 1999, down 80% from
their peak! Now they are on the rise
and have recently vaulted to new recovery
high ground. This cannot be
ignored.
The “dollar,” interest rates, and
industrial supply and demand statistics
for gold and any of the many other
commodities have no bearing on relative
values and secular fluctuations of
commodity prices. That’s because
over time there is a tie between the
cost of raw materials, the cost of labor,
the cost of money, and the prices of
finished goods. When it comes to raw
materials and labor, the pivotal point is
man himself. The cost of money can
be manipulated in the short term by
“policies” as we’ve seen in the past
few years. The prices of finished
goods are set by their manufacturers.
So even though Big Governments and
Big Businesses seem all-powerful in
Page 8 The Slanker Report
the short term, in the long haul relative values are not
governed by the whims of the people or their leaders
but by market forces. That’s why in the Big Picture
the efforts of the United States’ leadership, directed
at creating a utopian economy with monetary manipulation,
jawboning, legal maneuvers, and debt, will appeal
feeble as it fails.
For a view of the relationship between commodities
in general and gold I use the CRB index to gold
chart. As you can see, after gold’s wild gyrations
following its “legalization” in 1975 it has tended to
move in tandem with the CRB index. This is as it
should be.
Panic Will Cause Dollar to Plummet
Now having said all this, we must be cognizant of
the fact that gold is money and during economic/financial
panics the values of all things can fall versus
gold. Some folks believe that in a panic folks will rush
for dollars. But that only happened in the past when
the dollar was convertible to gold, as it was during
the 1929 to 1932 deflationary period.
It’s most likely then that when deflation eventually
strikes again and debts collapse, the dollar will
drop like a stone against commodities, and commodities
will plunge against real money—gold. If commodities
can plunge versus gold, then we shouldn’t
be surprised, when in the short term, we see commodity
prices in general rise sharply against gold. When
this latter event occurs, it does not mean gold is being
held back by conspiracies against it. It just means
that in the short term markets can cycle imperfectly.
When I say short term in this context, I’m thinking in
terms of two or three years; sometimes as many as 10
years. Long term is decades, even centuries.
There is no question at this time that gold and
commodities in general are in long-term uptrends.
Both gold and the CRB bottomed in 1999 and followed
up with successful tests of those lows in 2001.
As their bull markets progress there will be times
when commodities are ahead of gold and vice versa.
In addition, there will be some commodities that lag
the commodity pack and others that lead it. The most
prominent leader has been oil. But other commodities
such as molybdenum are making new all-time highs in
nominal dollar terms. Copper appears to be on the
verge of moving to record nominal dollar highs. The
CRB looks as if it will have to do some additional
work between 300 and 320 before it will be able to
shoot to new all-time nominal dollar highs.
For most of the bull market the action will come in
stages. Prices will move up doggedly to new highs
and then spend considerable time consolidating
those moves with backing and filling action. The
backing and filling action keeps investors on edge
and skeptical of the bull market. But eventually the
terminal stages of the bull market will commence.
That’s when prices will shoot up steadily and everyone
will confidently jump in to play. Until then the
gold and commodity bull markets will climb walls of
worry.