The amazing gold bull market which began when the gold pool was closed down in 1968 was an extraordinary episode in financial history. Beginning at $35 and topping out at $850, the bull-run represented a gain of 30 percent a year over twelve years, far in excess of the inflation rate of 7.5 percent for the same period.  As gold fever spread far and wide in the late seventies, the speculating public piled into the gold market signalling a lack in confidence in government and the US dollar. It was even reported that singer / actress Bette Midler had demanded payment for her 1978 European tour in South African gold coins refusing to accept payment of $600,000 in US dollars. Now you may be thinking that she was late to the party, but gold finished the year of 1978 at the paltry price of $226. In the following year, gold managed to climb to $524 by the last day of 1979, before going parabolic to reach an all time high of $850 within the space of three weeks.  When Rob Griffiths spoke to King World News about the exponential phase, this is exactly what he was referring to:

Well so far gold has risen for 10 years from roughly $250 to $1,400, and it’s still in the linear part of the curve.  But by the time it (gold) goes exponential it is going to be hundreds of percent higher than it currently is.

The second thing is again from history, it’s usually bullion that moves initially.  And then when it (gold) has moved enough to change the economics of companies mining gold, like Newmont, Barrick, Agnico Eagle, Goldcorp, those sort of things start to perform well.  We haven’t yet got to them breaking out into exciting trends.  And then the final bit of the story is something unpronounceable in a far off dusty country starts to go, and that’s usually the end of the game.

But at this stage, to borrow a quote from Winston Churchill, ‘This is not the end, or the beginning of the end, but it might be at the end of the beginning.’  That’s where we are on the gold story, so stay long.

At the moment it is not true that gold is an over-crowded trade, absolutely nowhere near true.  I’m right in the midst of private wealth management here (at Cazenove Capital) I know who’s got it and who hasn’t and it’s not an overcrowded trade, even amongst the hedge funds.  Most people have heard of Mr. Paulson, and he’s got a lot of gold, but most of the others (hedge funds) have not done so.

Furthermore in countries, we’re well aware in India and China, they regard themselves as owning too much of their reserves in dollars.  They are trying to diversify away, but there are reasons not to put any more money into the yen or the euro at the moment.  What else can they do?  They’re building up real assets, and as a reserve asset gold fits very well.

They (India & China) could multiply the proportion of their reserves that are in gold by hundreds of percent, and still not be deemed to have gone too far.  So I think the demand is going to be bigger than the mining supply each year, and once it becomes a mania the gold price will be higher than $3,000 an ounce by the time the mania begins the exponential phase.

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