The above introductory comments are edited excerpts from an article* by Jason Hamlin (GoldStockBull.com) entitled Why NED Davis is Dead Wrong About $660 Gold.

Hamlin goes on to say in further edited excerpts:

In an appearance on CNBC last week LaForge said that in the 1980s the price of gold fell about 65% from peak-to-trough as the precious metal endured a 20-year bear market and that, after hitting $1900 an ounce in 2011, gold should see a similar peak-to-trough decline in the current “supercycle” down to $660 an ounce, or about 40% lower than where it is currently trading.

…While I agree that understanding cycles is key to price forecasting and successful investing, I am not sure that LaForge understands the current gold super cycle or has taken into consideration the distortions caused by central bank stimulus and market intervention.  Everything is indeed cycles and waves, including our natural environment, political system, etc., but understanding these cycles is the challenging part.

Mr. LaForge and NED Research are assuming that gold has finished its super cycle and already peaked. The correction over the past few years has certainly been brutal, but let’s see if you agree with his thesis that the gold market has peaked and is heading for $660.

In the following points, I will argue the reasons why the gold market has not yet peaked. Instead, we are in a counter-trend correction within the long-term bull market.

1) Gold Gained Over 2,000% During the 1970’s – The current gold bull market has advanced only around 500-600% during the current bull market ($300 to $1900 gold). Bull market cycles, in general, tend to generate gains well in excess of 500% before they are over, as shown in the chart below. This suggests that gold has not yet completed its bull market cycle. We are more likely in a severe correction within a long-term bull market than at the end of the bull market.

bull markets

2) Gold Has Not Come Close to the Inflation-Adjusted High from 1980 – That would put gold around $2,400 according to official inflation statistics or $8,890 according to the inflation statistics used by John Williams of ShadowStats.com.  Either way, one would expect the current cycle to climb somewhere well above $2,400 before claiming that a top has occurred. Certainly, all of the conditions that caused the 1980 spike are much more severe today.

inflation adjusted high gold

3) Paul Volcker Doubled the Fed Funds Target Rate from 10% to 20% in 1980 – He did this in order to slow inflation and hold the monetary system together. The prime rate climbed to 21.5% during this time! This move crushed the gold market and led to the sharp decline that followed. Contrast this to today when the FED has kept interest rates near zero for years and has only talked of making incremental increases in meetings and notes. Even the hint of raising rates today sends the stock market into a tailspin. Raising rates too high, too fast would also make the Federal debt unmanageable.

So, while the gold market might be pricing in a rate hike in the near future, things are different from 1980 and not nearly as conducive to such drastic policy changes. Absent such a rate hike, should we really expect a repeat of the 1980 plunge in the gold price?

voller gold 1980

4) Gold Bull Markets End with a Bang, Not a WhimperThe gold price rocketed 120% higher in 1979 with what analysts call a blow-off top. By contrast, the best year of the current bull market was a 32% gain in 2007. This is not indicative of a top in the gold market.

bang gold market

5) Dow to Gold Ratio Drops Toward Parity at End of Gold Bull CycleThe ratio of the DJIA to the gold price typically reverts toward parity at the peak of the gold market. This is the point where gold becomes overvalued versus stocks and one ounce of gold can buy one unit of the DJIA. It dropped to 1.9 at the end of the gold bull market in 1932 and dropped to 1.3 at the end of the gold bull market in 1980. This Dow-to-Gold ratio has been trending towards higher peaks and lower troughs historically so one might expect it to finally drop to 1 or lower during the current bull market. At such a point, talk of the end of the gold bull market and a sharp plunge of 65% might be warranted but this ratio has thus far only dropped to 6.3, suggesting that gold has quite a bit of appreciating to do versus stocks before it is overvalued or at the end of its bull cycle.

Dow to Gold

6) Participation in the Gold Market Remains Very LowBull markets tend to end with mania, where everyone and their brother is scrambling to buy gold at any price. Even in 2011 when gold was trading above $1,900, participation remained very low (estimated at under 2% of the population). People were still lining up to sell their gold and cash in, not buy as much as possible.

cash_for_gold

The items above are not signs of a top in a bull market. They suggest that we are in the midst of a major correction within a larger bull market cycle, not a new bear market in gold that will take the price back to $660.

We should be witnessing signs of a hyper-cycle that takes the gold price and all of the indicators above well past prior bull markets. We are experiencing:

  • record levels of debt,
  • unprecedented bailouts,
  • QE and monetary stimulus,
  • artificially low interest rates for years on end,
  • unfunded liabilities in the trillions,
  • derivatives in the hundreds of trillions and
  • a de-dollarization environment that threatens the dollar as world reserves for the first time in decades,

yet gold is trading near the all-in cost of production for many miners. There is little to no profit margin, as gold is selling on the COMEX around the same price that it takes mining companies to dig it out of the ground. What other markets display this type disconnect? Can you buy a loaf of bread below the cost for the baker to make it? Can you buy oil below the cost to drill and refine it? Can you buy a home below the cost to build it or a car below the cost to manufacture it?

I will readily admit that the correction in the gold market has lasted longer than I had anticipated and brought prices lower than most gold analysts predicted. Even the anti-gold banks such as Citibank had a price target for gold of $1,655 in 2014.

Can the price of gold go lower? Yes. The price is set on paper markets, using leverage and borrowed money, with participants that have bottomless pockets and multiple ways to manipulate the price and profit from less sophisticated investors. Market manipulation has been exposed and confirmed in so many financial markets that it should not be all that hard to imagine that it occurs in the gold market as well.

Given this understanding, the price can disconnect from reality and do anything in the short term – but I am not a day trader and I am not too concerned about the short term. Prices can not persist at or below the cost of production for long.

  • Companies close their mines,
    • supplies drop and
    • prices bounce back.
  • New markets open that diversify price discovery and
    • reduce the ability of big banks to manipulate prices.
  • Opportunistic investors sense value and
    • step in to buy at oversold levels.
  • Free market pricing has a way of re-asserting itself, in one form or another.
  • Furthermore, the nature of our fractional reserve, debt-based fiat monetary system dictates that banks and their government puppets will continue to print money in order to
    • keep their system afloat,
    • enrich their inner circles and
    • keep their power intact.

What is not so certain is that:

  • they will continue to find eager buyers of their debt in the international markets,
  • China will continue to hold large amounts of dollar-denominated assets or that
  • oil-producing nations such as Saudi Arabia will continue to demand dollars for their oil in international markets.

While nobody can predict what gold prices will do, we can be fairly certain that NED Research is tossing around outlandish price forecasts in order to get attention and drum up business. It is working in the short-term I suppose, since here I am writing about them, but one has to question the credibility of a research firm which believes that the gold price will fall 40% or 50% below the cost of production.

My money says we are at or near the bottom, but only time will tell.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.goldstockbull.com/articles/ned-davis-research-wrong-660-gold/ (Copyright © 2014 Gold Stock Bull – All Rights Reserved)

If you liked this article then “Follow the munKNEE” & get each new post via

Related Articles:

1. Don’t Buy Gold Until Price Falls Below $1100! Here’s Why

An analysis of the ratio between the market capitalization of gold and the gross world product over the past 63 years suggests that the current price for gold has further to fall and that it would not be wise to begin buying gold until prices have fallen below at least $1100 – and not expect gold to appreciate beyond $2,000 any time soon. Here’s why. Read More »

2. The Gold Price Could Go Even Lower – Here Are 5 Reasons Why

I see various signs that indicate that gold bulls may have to endure one more capitulation to the downside before the next leg of the bull market begins. In what follows I identify what could send the gold price lower and suggest some investment strategies to consider. Read More »

3. Gold Will Drop to $900 – Silver to $15 – Before Going Parabolic!

Back in early May, 2013, I correctly forecast the lows in gold & silver which occurred 2 months later. Today, my new analyses indicates they both will show further weakness before both jumping dramatically in price by the end of 2014. Below are the specific details of my forecasts (with charts) to help you reap substantial financial rewards should you wish to avail yourself of my insightful analyses. Read More »

4. Gold Price to Plunge: The Inside Scoop

We will allow all of you here today, in the weeks running up to the seizure of the world’s gold, to put in place your trading strategies in anticipation of the ’Mother of All Insider Trades’. This will allow you and your organizations to profit beyond your wildest dreams when we ‘drop the hammer’ and reduce the price of gold to $20.67 USD. Read More »

5. Long-term Picture Shows Bull Market In Gold & Silver Is STILL Intact

The day is coming when insincere promises made by bankers to deliver tons of silver and gold sometime in an uncertain future will not be good enough to satisfy market demand, and that’s when this farce ends. Expect it to end with a bang, not a whimper, and people will either be in or out when it ends, so the time to get in is now. Read More »

6.  Gold In 2014: Price Forecasts ($900 – $1,435) & Commentary

Below are a series of forecasts and predictions of what 2014 could bring for the price of gold (as low as $900/ozt. & no higher than $1,435/ozt.) and the reasons why with interesting commentary by some individual investors and gold enthusiasts. Read More »