Gold and Silver price records reached. What's Next

Gold has cracked through the A$1,400 barrier again this week - I thought we were in record territory again (please see the image below for a visual representation of "record territory"), but after checking some historical price data, it turns out the highest price for gold in Australian dollars was not reached this week, but on October 10th last year - that's when the High Ask Price for AUD gold (as quoted by the Perth Mint) reached $1,425.36.

Previous benchmarks for the gold price in Aussie dollars can be seen in the table below:

 

Gold Price Highs in AUD
Date Price Inflation Adjusted
10/10/08 $1,425.36 -
31/01/09 $1,414.04 -
29/12/07 $960.18 -
12/05/06 $942.25 -
18/01/80 $729.70 $2,435.00
12/12/05 $720.89 -
29/10/87 $701.70 $1,330.00
23/09/86 $698.45 $1,439.00
07/01/88 $688.10 $1,215.00
05/02/03 $655.90 -

NB - The above chart shows the highest price for each of the years listed, in descending order. I think if you check the records you'll find that something like 249 of the highest daily prices for gold have been recorded during either 2008 or 2009, so I wanted to get an idea of what previous levels were. It's interesting that it is the figure of $729.70 in 1980 that is the peak that has stuck in the mind of "Joe Average", rather than the more recent peaks from 2006 onwards. I've used the RBA's own "Inflation Calculator" to determine an approximate value for the past highs where I thought they were relevant, and as you can see, although prices are now getting back to levels they were in the late 1980's, we still have some way to go before we reach the heady high of January 18th 1980. (My tenth birthday apparently, from memory we had a picnic BBQ at Bibra Lake, I got some cricket pads.)

Silver on the other hand is ages away from getting into record territory (real or otherwise) - the most recent high in silver in AUD was $23.28, and it happened on March 17th, 2008. That was approximately half the highest ever price recorded for an ounce of silver of $46.37, reached on January 21st, 1980.

 

Silver Price Highs in AUD
Date Price Inflation Adjusted
21/01/80 $46.37 $153.00
28/12/79 $25.86 $96.00
17/03/08 $23.28 -
12/05/06 $19.43 -
27/02/07 $18.68 -

So what do all of these figures mean? It is probably timely to remind ourselves that there are lies; damned lies and statistics, which I take to mean we can all read them anyhow we like. The fact that gold has now been effectively in record territory since May 2006 shows that the market has entered a phase separate from those that have passed. The world economy and the international monetary system are both clearly in uncharted waters, so that shouldn't be too surprising. Will it move on from here? The forecasts for USD gold that I've read say that the price is expected to trade in a range between US$700 and US$920, while the most up to date forecast I can get on the AUD is that we should be in a range of between 0.6400 and 0.6870 for the time being.

What that says to me is that gold in AUD looks like trading anywhere between A$1,000 and $1,500 for the time being, barring any major events that haven't been factored in yet. In turn, this means that there could be a maximum downside risk of around 30% (and I'd say we'd get plenty of warning before gold got anywhere near A$1,000 / ozt), and could have an upside that's only going to be limited by what could happen. How bad could the world economy and the international monetary system get? WIll gold rise if those things do happen? These are questions each of us has to answer for ourselves, and we buy metal accordingly.

I do know however that if you asked any Australian if they'd like to be able to buy an asset such as real estate for a fraction of what it would have cost back in 1980 (or 1979 or 1986), they'd jump at the opportunity!

 


Category: Market Movements