Gold Digger: Get set – if the ’70s is any guide, gold’s next leg up will be explosive
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Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.
There are startling similarities between the 1970s bull run – which saw gold soar 2,300% from US$35 to US$850/oz by 1980 – and today, say resources investors Goehring and Rozencwajg.
Precious metals are used by investors as a ‘hedge’ against the risk associated with high inflation, falling currency, or a stock market crash.
High interest rates, inflation, potential recession, and failing banks – we could be talking about 2023, but all these things helped drive gold and silver prices into the stratosphere during the 1970s.
Goehring and Rozencwajg says the current bull market started in 2018 when gold hit a low of US$1160/oz. Since then, it is up over 60%.
A nice return, but if we use the ’70s as a precedent there’s a long way to go.
The current ‘correction’ is nearly over, Goehring and Rozencwajg say – “the next leg of the bull market is underway”.
One difference between the ’70s and present-day gold action is the severity of this correction.
“The current selloff was much less severe than in the 1970s, despite both periods experiencing material rate increases,” Goehring and Rozencwajg say.
“In 1974, gold and silver fell 45% while the stocks fell 70%. This time, gold only pulled back 20%. Silver fell 40%, and the stocks “only” fell 50%.
“Gold and silver stocks are only 15% away from their 2020 peaks, while gold is close to a new all-time high.”
Why? The key factor behind this difference lies in the actions of central banks – the “leviathans” of the gold market – which continue to buy gold aggressively.
China remains the dominant buyer.
Meanwhile, western speculators have significantly slowed their gold liquidations and are ready to enter a new phase of physical gold accumulation, Goehring and Rozencwajg say.
“Western investors will quickly come into competition with central bank buyers, resulting in a sharp rally,” they note.
“The corrective phase might still drag on as the Fed raises rates; however, we are getting close to the next leg of the bull market.
“If the 1970s analogy holds, the next leg will be explosive.”
Here’s how ASX-listed precious metals stocks are performing:
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