gold shares set to run hard ..., page-49

Bruce,

I had a big post planned, to discuss what you have said. However, I found a very good article which says it far better than I ever could.

To put that article in context, however: the reason why I went looking for it, was that I was intrigued by the massive surge in the BGMI/Gold in 1968. Now, I knew that gold was fixed at around $US38/oz at that time. However, at that time gold mining companies surged enormously (almost unbelievably), in the face of a fixed gold price. What was going on?



You can see it in this graph: from 1960, when the BGMI was about 35-40, until 1968, when it increased to close on 250 (a six-bagger), the "official" gold price moved not at all. Do you smell a rat? I do.

Bruce, take another look at your correlative chart. Do you see the 1968 peak? Do you see that it's at 6.0?...Six-bagger; 6.0...what do you reckon?



If you want to read about why 1968 was such a crucial year for gold and why gold shares (and black market gold) was so far above official $US gold at that time, you'd do worse than read: The Day the World Changed The Impact 14 March 1968 had on Money, Gold & Mining Shares

However, I'm mainly interested in Bruce's graphic and the contention that it proves gold equities underpeformed physical gold, during this period of history.

So, let's just briefly recap. The absolute highest point in the BGMI/Gold ratio occured at a time when the gold price was fixed, when there was a significant non-$US market in gold, and at a time when gold mining companies were taking advantage of that market.

If you read that historical series, you will see how ludicrous it was for the US government to suggest that gold was worth a mere $US38 in 1968.

Given that extremely artifical ratio, is it any surprise that, once the false restriction was lifted, gold and gold mining shares started to return to a more "normal" ratio?

What amazes me, is that people had become so enamoured of gold mining shares, that it took more than a decade (1968 to 1980) until the ratio returned to its long-term average.

In fact, it took the ultimate end of the gold bull market before that happened. Today, BGMI/Gold is around 1.6 - hardly extreme; in fact, about "average".

On that basis, gold equities could be expected to do about 1.6 times better than the gold price.

What is interesting, is the graph I showed a few post ago, which says that the BGMI is at the same levels it was during the 1980 peak.



Oddly enough, Bruce, gold has recently been at that same peak ($US850)!