Monday, July 19, 2010

Gold price appreciation since 2002

 The following chart is the Gold price appreciation since 2002.  Since that time, it has averaged an 18% return.

Can you think of another investment that has had that return over the last 8 years?  A $10,000 investment in Gold at the price of $278 (Jan 2002) would be ~36 ounces. At Gold's current price of ~1,200 and ounce, the investment would be worth $43,200. Not bad considering the same investment in the S&P500 index or the Dow.

With worldwide governments producing $$$ with the printing presses, Gold has been the safe-haven investment and choice of monetary security for those that see the debasing of their fiat currency.

If the path of producing more money through a printing press continues, we may see hyperinflation where a loaf of bread, eggs and milk may cost you $15 on sale at the local grocery store.
 $15 dollars please...

Gasoline may also rise dramatically as there has been quite a bit of talk on 'peak oil' over the last decade. (Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline).  When gasoline prices hits, $5 and up, all retailers will be forced to increase their price as well due to the increase in shipping costs.

Commodity bull markets will last 15 years + up to 25 years.  If we say that the Gold bull market started in 2002, 15 years will take it to 2017 or so. Based on that scenario, we still have another 7 years left in the Gold bull market. One way to keep track of how close Gold may be to a top is with the Gold/Dow ratio. (See the previous posting).  As the ratio starts to creep lower and close to 1:1, it has reached a top based on historical data.

If you look at a yearly chart of gold from 2002 to the current date, it has had a few significant pullbacks, but after each one, the price has appreciated to new all time highs.  I've heard one Gold analyst mention that after Gold hits a new high, it will pull back 14% and consolidate before reaching another new high.

Will Gold close the 2010 year with another yearly high? Over the last 8 years Gold has ended the year higher than the January opening price. The minimum gain was 3% in 2008 with the maximum at 30% in 2007. The Gold price in January 2010 was ~$1121, a 3% gain would be $1154 while a 30% gain would be $1457. The average over the last 8 years is 18% which would bring the price to $1322.

If your 'in' the market for the long term, hold tight and don't pay too much attention to the daily and weekly price swings as it looks like the yellow metal may be heading higher in the coming years.

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