Dylan Grice, a strategist at SG Securities in London, thinks global conditions today could unleash another gold boom like the one in the 1970s. Then, as now, the world lost confidence in the U.S. dollar as a store of value. Back then, central banks started hoarding gold instead. Today, he notes, they are net purchasers of gold for the first time since 1988.
And although gold has risen a long way, so has the U.S. money supply. Mr. Grice calculates that even at today's prices, the bullion that the U.S. government holds in places like Fort Knox is still only worth enough to back 15% of the U.S. monetary base. That is near a record low.
At the peak of the gold mania in 1979-80, gold prices rose so far that the backing exceeded 100%. How far would gold rise if that happened again? To around $6,300 an ounce, Mr. Grice says.
2 comments:
Haven't read it yet, but I think totally different scenario.
late 70's gold run was due to the government lacking credibility because it did not have a fed chairman who had rejected the phillips curve yet.
Once Volcker's credibility was established, gold prices fell sharply because much of the prices were based on future expectations and since we were expecting inflation without end, the price had no ceiling.
I'm not saying the feds have credibility now, but the conditions and philosophies are totally different than it was then. apples to oranges.
Gold will go much higher than $6300. The question is when?
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