Gold Fooled Everyone Then, and Still Does So Today
Gold is up more than 17% this year, sits at a record high and is in an 11 - year bull run. Business Day 4th August 2011.

1999?, 2008?
We thought this headline summed up the feel of the gold market this week, but we wondered when "then" was. We thought it might have been 1999, but it turns out to have been 2008 at the Lehman moment.

IN THE MARKETS: Gold fooled everyone then, and still does so today
Gold is up more than 17% this year, sits at a record high and is in an 11 -year bull run.
RON DERBY, Published: 2011/08/04 12:03:35 PM
GOLD is up more than 17% this year, sits at a record high and is in an 11 -year bull run, its longest winning streak since at least 1920 in London. As one of my favourite analysts calls it, the fear index that is gold has been moving higher ever since the dot.com bubble all those years ago.
In the decade, gold has seen off this and other bubbles, none as big as the subprime crisis in the US, which led to the 2008 financial crisis and in turn a global recession.
That was then, and the two years that followed were supposed to be the recovery years, when lessons were being learnt, and laws drafted to ensure it never happened again. In much steadier waters and with markets recovering from record losses, gold’s climb was expected to calm in line with the much more sober approach promised by governments and those with the keys to world’s finances.
Gold fooled everyone then, and continues to do so now. Of highest concern for all investors over the past couple of weeks and driving gold higher was the inability of the US government to reach consensus on raising its debt ceiling before its deadline on Tuesday. With a resolution found, gold was expected to take a bit of a breather. Asking for more than that was impractical, as Europe’s debt issues aren’t off the table yet, just off the front pages. This week, the US congress approved raising the US debt limit by $2,1-trillion and reducing federal spending by $2,4-trillion or more. However, this hasn’t put much of a brake on gold’s surge, instead the metal has motored on.
Fears of a US default have been replaced by renewed and much louder concerns that the world’s biggest consumer may be heading into another recession.
According to a Bloomberg report yesterday, five of the nine economists on the academic panel that dates recessions said the two- year-old US recovery might be diminishing as consumers and the government pare spending.
"This economy is really balanced on the edge," Harvard University economics professor Martin Feldstein, a member of the Business Cycle Dating Committee of the US’s National Bureau of Economic Research, said on Bloomberg Television. "There’s now a 50% chance that we could slide into a new recession. Nothing has given us much growth."
The US commerce department last Friday said gross domestic product climbed at a 1,3% annual rate from April to June after a 0,4% gain in the first quarter, less than an earlier estimate. Earlier this week a US report showed that consumer spending fell in June for the first time in about two years.
If the US economy enters a recession there will be little if any global growth. Metal prices such as copper will plummet, affecting top mining houses Anglo American and BHP Billiton , which earn a big chunk of their revenue from the metal. An already weaker JSE all share index will weaken further.
Botswana, whose economy is still largely Nicky Oppenheimer- and state-controlled, could see its diamond mines close once again.
It’s pretty dire, but not for gold investors, it seems, and even those who may choose to get exposure to shares instead of gold coins.
Yesterday, UBS revised its monthly forecast for the metal to $1725 /oz from $1575.
Jeffrey Nichols, MD of American Precious Metals Advisors, last week said that gold’s rally was just the beginning of its great leap.
"A leap that will carry the metal to $2000 an ounce in 2012, with prices heading still higher, quite possibly to $3000, $4000 and maybe even $5000 an ounce by the mid-to-late years of the decade," he said on his website.
Whether gold follows Nichols’ projection or wavers way before $3000/oz, there will come a point when the metal reaches its ceiling, where it’s simply unsustainable. The last bull run when this crescendo was reached was in 1980.
At the end of the 1960s, when US combat deaths in Vietnam topped the Korean War total, gold rose from $35,17/oz to a then record of $850 on January 21 1980. After that peak, it slumped to a low of $284,25 in the next decade .
In adjusted dollars, $850 in 1980 would be about $2248/oz now, metals research firm GFMS says.
While the peak for many analysts remains way off in the distance, South African gold miners will be hoping to fully benefit from these higher prices.
They haven’t fully benefited from them in the past because the rand has largely strengthened in tandem with gold. Gold miners’ costs are in rand and their sales are in dollars.
But over the past month, the rand has largely been unmoved, weakening 0,3% against the dollar, meaning miners are getting more rand per kilogram for their gold.
The local bourse’s gold mining index has gained 10% over the past month, with Harmony Gold the strongest performer, up 15%.

Where Next?
We think the people talking about $5,000 are fooling themselves, but so are those waiting for a "correction" back to $1,000. Time will tell!