Indeed, the acceptance by the bond market that US interest rates are on a rising curve due to increasing inflation is probably the most significant bull market development for gold in years.
The rising oil prices of the 2000s have followed a pattern last seen in the Oil Boom years of the 1970s. There has been a great inflation of real estate valuations and a bust in global stock markets followed by a recovery. There has also been a near tripling of gold prices.
What we have not yet seen in the gold market is the final rush of investment mania in this sector. It was last seen in the late 1970s before the gold price peaked at $850 an ounce in 1980.
So far in this bull market, which is the first bull-run for gold since the 1970s, we have yet to even return to the high of the previous cycle. Given inflation since then that would mean a gold price in current dollars of over $2,500 an ounce. That price is also just a reversion to what you would expect from the Dow Jones Index/Gold Price ratio.
Some analysts have said that higher interest rates will be bad for gold, which pays no interest. But that did not happen in the late 1970s when interest rates rocketed. In fact, people bought gold to protect against inflation and worried that interest rates were negative after allowing for inflation. For the 2000s read the 1970s.
This was the most positive gold market in living memory. So if the idea of the US again needing to inflate its economy and devalue its way out of debt rings true then any investor should be buying gold or silver.
That is why precious metals still look a great buy this summer, and this might well be the last buying opportunity for this asset class before the real boom gets going this autumn.
Then you will likely find that today’s under-priced junior explorers suddenly gain attention as the asset class offering the most leverage to the rising gold price. Also the gold stocks that have drifted sideways for a year or so will be back in demand.
So if the summer looks like a tricky time for precious metals remember that the best time to buy is when prices are low and before everybody wakes up. It could be too late to wait for a possible stock market correction this autumn which might be the point at which big money floods into precious metals as a hedge against inflation.
In short, the upset in the bond market last week, overturning a major multi-year trend is probably the buy signal for precious metals, and anybody waiting for a better buying opportunity is going to be disappointed.
Sunday, June 17- 2007 @ 9:26 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.