I posted long term charts of silver and gold tonight. They are at the bottom of this page. I wanted to refresh my memory of the history of those contracts. General opinion seems to be we are headed for inflationary times once again. The last time we had big inflation was in the 1970’s and 1980’s. I was in third or fourth grade and I can remember President Ford with his WIN (whip inflation now) pins.
He wanted the general public, I believe, to help stop inflation. It wasn’t’ until Paul Volker took over the Fed, appointed by President Carter and who served under President Reagan. In 1981, inflation was at 13.5 percent. In June 1981, Volker raised the fed funds rate to— get this—- 21%—-. At the end of 1983, inflation was at 3.2%.
I can remember the number every one watched in the 1980’s was M1. Money Supply. God how I hated my high school econ professor for talking about M1 all the time, and how President Reagan was the root of all evil. Talk about an interesting time in history.
We were at the height of the Cold War, Russia was still a major threat.. I had a social studies teacher in high school who had most of us convinced that the ‘doomsday clock’ was going to reach midnight about 3 hours before any of us had a chance to lose our virginity… We were always on the verge of Nuclear war, etc, etc, etc.
Yet, in spite of it all, we pulled through, just as I am sure we will now. Some way some how, the USA pulls it out, no matter who is at the helm in Washington,DC or what your personal political bent is. This country will succeed in spite of it all.
Back in 1980 if you look at the Silver chart, we spiked from about 6 dollars an ounce in 1979 (right about the time of the Iranian Hostage Crisis) up to 48 dollars. That was fueled by the Hunt Brother’s attempt to corner the Silver Market. I have to believe they were the inspiration for Mortimer and Randolf Duke from the 80’s classic movie Trading Places.
Look at that chart. Seven years later we had a spike up to 14 bucks an ounce in 1983 ( my junior year in high school) If you were unlucky enough in 1983 to buy Silver at 14 dollars, you only had to wait until 2006 to get back to even. Only 23 years… No problema. So the next time you listen on the radio to the Silver and Gold bugs dumping on the US dollar, preaching the end of the world as we know it and the advent of a road warrior mentality to justify your speculation as a long in Silver, pull out this chart, pour a nice stiff drink and take a big breath. Because 23 years is a long time to wait to get back to even on any investment.
Now lets look at Gold. Its even better if you can go back to the 1970’s and look at the spike up in gold then. But on this chart I found, we have the spike in 1987. Coincidentally, that was the year of the 87 Crash, which saw the Dow drop 508 points from the 2250 level (yes 2250) to a low at 1738 on Octber 17th 1987… Now THAT was a time when 100 point breaks were meaningful!! Not so much with the Dow at 10250…
In any event, In 1987, I was in my Senior year of college at Colgate, and in October, I know I was concentrating my Senior year playing football. I do remember, after the crash, that a lot of my recently graduated friends, who were just starting out in NYC, all were laid off. And as graduating Seniors in 1988, we were advised not to even think about a career on Wall Street, since, according to Time and Newsweek, it would be years before the stock market would ever recover.
In 1987, Gold spiked up to 500 dollars an ounce. The world was coming to an end, once again…If you bought those highs then, you had less of a time to wait to get even… Only 19 years this time. Gold ticked up to 500 bucks in mid 2005. As late as September 1999 we had gold down at 253 dollars an ounce, and 400 dollars an ounce was the holy grail. 1999 was the peak of the Dot Com Bubble, with Nasdaq at 5000, just to refresh your memory…
All the while, between 1987 and 2005, I can remember listening to the gold bugs. Mostly on AM radio or on talk radio in general. Periodically, there would be a crisis, like the Gulf War I and II which would fan their fires again. But we have not seen a significant move like this in gold since the oil embargo back in 1973.
So as this year ends, and we look to 2010 for an opportunity to have our own best year trading, remember these charts. Go back and look at how long it took to get back to even after those bubbles burst in both Silver and Gold.
Could this be the decade of Gold and Silver? Maybe. Could the Cubs win the World Series? Maybe. I mean even the Red Sox did it, eventually…
Good Trading
