Gold prices seem to be setting new highs daily. Of course those would be highs not adjusted for inflation or debasement of the dollar. If we were to set real highs, we would have to see gold prices rise near $2400 per ounce - maybe higher! Obviously, a dollar today is worth far less than a dollar was in 1980 when gold and silver hit long-standing record highs of $850 an ounce and $54 respectively.
Just to help you put things into perspective, in 1980 a postage stamp was $.15 cents, a gallon of gas was $1.25 and the Median Household Income was $17,710.00. Our entire Federal Debt was just $909.1 billion and government spending was a paltry $590.95 billion. Here's one more little tidbit, the Dow reached a high of 1000 and a low of 759.
These things considered, it's no stretch to say gold would have to triple it's 1980 record high in order to claim the title of, New Record Holder. Of course, most realize the $850 an ounce price marked the end of a bubble. Gold prices, as did silver, made parabolic moves higher and then quickly dropped off their highs to enter a new age of easy credit, higher wages and economic expansion. Thank you Ronny.
Is that what gold and silver investors have to look forward to again? Reaganesque growth? The stigma attached to precious metals investors is that they hope for doom, economic collapse, hyperinflation, currency failure and every other kind of market debacle. I believe the contrary. I believe precious metals investors would gladly trade gains from higher metal prices for a return to the days when real estate had value, stocks were constantly driving to new highs and jobs were plenty.
Enter budget, deficits and debt. The prospect of a return to utopia seems to grow weaker each day. Hence, more gold and silver are being bought - not less! So when do we sell? Have prices topped? Is it time to liquidate and take profit?
If we believe gold's 5000 year history as a preserver of wealth, we have to begin to compare the gold price to the markets and weigh its value in comparison to our Federal Budget our deficits and our debt. Are precious metals now working to preserve wealth? This is where it gets interesting.
Let's take the Dow for example, to buy an equivalent position in the Dow today as existed in 1980, it would cost you 12 times as many dollars.
Note: The Dow is a very convoluted and subjective measure. The Dow components themselves are subject to change by committee in order to better reflect current economic conditions. In fact, did you know GE is the only remaining of 11 original components? Then, in order to account for things like stock splits, additional calculations are made to keep the measure accurate. See this link for a complete explanation on the History of the Dow.
As we relate today's gold price to the Dow, you see why some say gold could be trading as high as $10,000 an ounce in order to pace growth in the Dow average. If we look at budgets and debt, the case for gold at an even higher price per ounce can be made. Today, Federal spending is 6 times what it was in 1980 and debt - which we could reasonably argue should pace inflation and debasement of the dollar - is nearly 16 times greater. . . and rising!
Now to the question, Can I sell my gold and silver?
Obviously it's a question I hear more often as prices move higher. I believe that is a question each person has to answer for themselves. I usually ask some questions in return, Do you need the money?, If you sold, what would you put the dollars in? . . . and, Why did you decide to own gold and silver to begin with?
Let's keep in mind that, really, very few individual investors own either gold or silver. (See this previous report that puts into perspective the actual size of the metals market in comparison to world financial markets.) The price has risen because central banks are buying it, countries are buying it and huge investors who see the collapse of currencies on the horizon, are all buying gold. Do you think just because gold and silver have climbed this far, (not even to inflation adjusted highs) that those big players are licking their chops to sell?
When I ask the question, Why did you decide to own precious metals to begin with? the answer is usually something to the effect, when the world money collapses I want something real as protection. Bingo! That is the same reason central banks and countries like Brazil, Russia, India and China (others too) are all buying gold and silver. As far as I can see, there has been no real currency collapse to this point. We still print it, spend it and use it to pay our bills and buy things. Hyperinflation is at bay. The illusion is alive.
So, if the purpose for owning gold and silver and other precious metals is to protect against collapse, wouldn't selling it now defeat the purpose? And if currencies do not collapse? Then great, the plan to print our way out of depression and collapse worked and we can all go back to work, borrow some money and speculate in real estate again.