by Richard (Rick) Mills Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
Investors are starting to realize that gold is a storehouse of value and a safe haven in times of turmoil. Gold’s price has risen because of the abuse and mismanagement of our monetary and currency systems – throughout history, gold has always shone the brightest when trust breaks down, confidence falls and fear climbs.
Latest demand statistics from the World Gold Council:
- Total gold demand in Q2 2010 rose by 36% to 1,050 tonnes
- Investment demand posted a rise of 118% to 534.4
- With the return of demand for consumer electronics, industrial demand grew by 14% to 107.2 tonnes, compared to Q2 2009
The Dow on gold’s terms is telling everybody something important is happening. I published “Silver, Two of Seven” just three weeks ago, in that article I included the following:
“In 2000 gold made its $260 per ounce low, in January 2000 the Dow was 10,900
10,900 / $260 per ounce = 41.9 ounces to buy the Dow
Today at 10,447 DJII and $1,250 gold it’s 8.53 oz to buy the Dow.”
As I write this, the Dow:Gold Ratio is 10,447/$1250 = 8.35 oz.
Chart from earthlink.com
After being the best performing major asset of the last decade, is the price of gold going to continue higher?
On January 21st 1980 gold closed at US$850 an oz. According to Adam Hamilton of Zeal Intelligence, who uses the Consumer Price Index to recast historical gold prices into today’s inflated dollars. The gold price today would have to be US$2358 to match gold’s nominal high in 1980. So according to Mr. Hamilton’s figures we aren’t even close to receiving full value on our gold. And not surprising Tier One gold producers aren’t either.
According to Michael Curran, an RBC Dominion Securities analyst, the average discounted gold price among North American Tier 1 producers is $915 an ounce – gold is currently trading at US$1250 an oz.
There presently exists today reasonable, sound, and at least as far as I’m concerned, convincing arguments, that both gold and gold stocks, or at least Tier one producers, are undervalued.
Considering the seasonally strong period for gold and gold stocks is right around the corner, they might be even more undervalued then we think.
Current head of the Federal Reserve is Ben Bernanke, he’s an economist and a student of the Great Depression.
Bernanke thinks he knows how to turn deflation into inflation – throw massive amounts of cash at the economy and don’t worry about the dollar’s value, not yet anyway. Just get all that money out there and deflation will disappear and in its place will be very much welcomed, by the government anyway, inflation.