Decade's Performance

Technical Scoop (01/08/2010)
"While the DJI fell over the past decade, not all stocks lost, nor did all sectors. The leading sectors over the past 10 years were mining, gold and energy. Given that in all probability a new long-term cycle got underway for commodities as they bottomed between 1998 and 2002, this upcycle should continue for many years to come. But as was seen in 2008, corrections can be vicious.

. . .As we go into 2010, gold, metals & mining and energy should continue to perform well and return above-average gains.

One of the reasons gold and commodities should continue to do well is the declining US$. Since the Federal Reserve System was created in 1913 the US$ has lost 92% of its purchase value. The decline of the US$'s purchasing power has accelerated from the time President Richard Nixon took the world off the gold standard in August 1971. Recall that at the time gold was convertible into US$ at a fixed price of $35 an ounce. With the closing of the gold window (in effect a default by the USA) the world embarked on another experiment in fiat currencies. History is replete with failures of fiat currencies; probably the most famous collapse was in Germany in 1919–1923, where the Mark fell from 12 to the US$ to 4.2 million to the US$. More recently Zimbabwe saw its currency collapse as monetary inflation reached an incredible 231 million percent a year.

Despite a decade of rising gold prices, less gold is produced today than in 2000. In 2000 roughly 2,600 tonnes of gold was produced vs. roughly 2,400 tonnes in 2008 (last good figures available). Demand figures shows that about 3,800 tonnes of gold was consumed in 2008, leaving a 1,400 tonne shortfall.

. . .Figures to the 3rd quarter 2009 shows mine production of 1,886 tonnes and demand of 2,569 tonnes for a shortfall of 683 tonnes (Source: World Gold Council). The differential is made up from gold scrap and official sector sales. Over the past number of years official sector sales have been declining putting more pressure on gold scrap to make up the difference. The first 3 quarters of 2009 show a net disinvestment for central banks sales suggesting that central banks are now net buyers of gold. This makes sense given the announcements seen in 2009 of India, China, Russia and others making net purchases of gold to add to their reserves."

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