Gold Prices 1971 – 2014 in 3 Waves

Gary Christenson - Deviant Investor

The Big Picture:

Ignore the hype regarding gold, bonds, booms and busts, hope and chains, “shock and awe,” stock market crashes, “money honey” commentary, and ignore the politicians.  Don’t obsess over High-Frequency-Trading and market manipulation.  Instead, focus on the big picture as shown in the following chart of monthly gold, which has been divided into 3 phases since 1971.

 Gold Since 1971


Phase 1:  Gold rallied from about $42 in 1971 to over $800 in 1980, thanks to massive money printing, debts, deficits, wars, and a loss of confidence in the US dollar.

Phase 2:  Gold prices crashed subsequent to the bubble of 1979-80, and then drifted lower for about 20 years.  It double bottomed in 1999 and 2001.

Phase 3:  Gold rallied off the 2001 low of about $255 to over $1,900 in August 2011.  Since then it has corrected to under $1,200, and double bottomed in June and December 2013.  Current price is about $1,300.


How Will Gold Prices Change in the next 3 – 5 Years?


Option 1:  Gold prices will continue rising, erratically of course, within the green “megaphone” pattern shown above.  In my opinion this option is the most likely unless we descend into a global deflationary depression and/or nuclear winter, which the politicians and bankers will do “whatever it takes” to avoid.


Option 2:  Gold prices continue falling much like they did subsequent to the 1980 bubble high.  I consider this option unlikely.


What Else Supports Option 1 – Higher Prices?


1)   The rally into 2011 does not resemble the parabolic bubble blow-off into 1980.  The drop in prices since 2011 looks like a correction, not a post-bubble crash.  Gold was not in a bubble in 2011.

2)   Interest rates today are practically zero, but in the 1980 crash era US rates were at all-time highs.  Economic conditions are quite different.

3)   Monetary policy today is extremely loose, but in 1980 era it was, relatively speaking, tight.

4)   The stock market in 1980 had been declining or flat for over a decade, while the stock market of today has enjoyed over 5 years of practically continuous rally.

5)   In 1980 confidence in the US dollar and the financial system was fragile, while today it seems (perhaps undeservedly) much stronger.

6)   Technical indicators (see graph below) suggest that long-term gold prices have been bottoming during the past year.  Note the other examples of “over-sold” conditions in gold prices.

 Gold With Indicators


What Else Supports Option 2 – Lower Prices?


1)   Various self-serving forecasts from investment and bullion banks suggest lower prices – at least until they have sufficiently loaded up on future contracts and can massively profit from the rally ahead.  I remain skeptical of such prognostications.

2)   The price chart shows that gold has been falling since 2011.  Some people believe it will continue falling for another 10 – 20 years.  However, with ever increasing debt, bond monetization, food and energy inflation, massive Chinese and Russian purchases, and increasing political instability, lower prices appear to be an unlikely outcome.

3)   The Fed and most other western central banks would like stable or lower gold prices, so their unbacked debt based paper currencies appear less weak.  Maybe they can manufacture another decline in the gold prices such as during April – June 2013, but that also seems unlikely.



This is not 1979 or 1980 when political and economic conditions were drastically different.  Perhaps a better analogy would be about 50 years ago (1964) when the Vietnam War was escalating, US citizens were angry and marching in the streets, a gallon of gasoline cost 25 cents, coffee in a restaurant cost ten cents, and a decent middle-class wage was $2.50 per hour.  The subsequent 20 years were life-changing and financially difficult for many people.  Consumer prices increased drastically, the purchasing power of savings was destroyed, and people lost confidence in government and the US dollar.

Gold prices will rally much higher in the next 5 years.  Jim Sinclair’s initial target of $3,500 seems very likely by 2016 – 2019.  If the powers-that-be choose hyperinflation to deal with their massive debts, then much higher prices are “in play.”


There are many other options.  For example, if you don’t trust or like gold, a bank will pay you 1% interest each and every year if you invest in a Certificate of Deposit.


Additional Reading:

Silver Prices – Megaphone Patterns

Gold Elliott Wave Projection

Our Ponzi Economy

Huge Silver Spike


GE Christenson

The Deviant Investor

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10 thoughts on “Gold Prices 1971 – 2014 in 3 Waves

  1. Well here’s what is the same this time :

    1) USA total debt is the same ( or higher ) than it was 1929
    2) Wealth and income garnered by the top 1% of the top 1% is the same ( or higher ) than it was 1929 . .

    I guess I am saying that conditions are as bad, or worse, than those that led to the Great Depression.

    OK, then. I should mention what is different this time:

    1) In 1929, and after 1945, the USA was about to become ascendant. Now we are descending . . . . .
    2) In 1929, and after 1945, gains from the green revolution ( earlier ) and the ongoing industrial revolution were consolidating. Their effects were just being felt. The internet revolution will not grow food, or replace expensive oil.
    3) In 1929, and after 1945, the USA educational system was achieving great gains, YOY and decade over decade. Today it is failing.
    4) In 1929, and after 1945, Social Security was fully funded for its first decade or two. ALL PONZI SCHEMES ARE FULLY FUNDED FOR THE FIRST FEW ROUNDS ! Not funded today . . .
    5) In 1929, and after 1945, people in the United States were young and hungry ( physically and metaphorically ). Demographically, while we are not as badly off as Japan, we are becoming an old nation.
    6) In 1929, and after 1945, the Annual Budget Deficit, and Total National Debt were small — relative to the USA G.D.P. Not so today !
    7) In 1929, and after 1945, the Industrialized nations of the world ( especially the USA and G.B. ) had access to “unlimited” cheap oil, and knew how to leverage that cheap oil to massively increase the standard of living. Japan and Germany both joined that class soon after. Oil may remain plentiful, but CHEAP OIL is gone forever.

    I could go on, but I have painted the picture. The USA cannot afford even 1/2 of total social program commitments made since 1964, and payable for the next decade and decades — WITHOUT MASSIVE MONEY PRINTING. Any actuarially sound analysis bears this out.

    Seventy years ago the USA had a glowing future, when compared to the future that we face today. Especially that which our children and grandchildren face.

    What is coming ( before the end of this decade ) is MASSIVE MONEY PRINTING, on a scale never before imagined or attempted.

    Be long gold. As Richard Russell and our Deviant Investor friend both advise.


  2. Your “log scale” charts remind me of James Turk’s diagrams from 2008 that predicted gold and silver prices would be orbiting the moon by now. Unfortunately, technical analysis and chart predictions are impossible in a completely rigged casino…er, “market.”

  3. I think that you are way too dismissive of the possibility that the world will undergo a deflationary event.
    Despite the massive central bank money “printing” exercises around the world since 2008, inflation has been extraordinarily modest – except for equity markets. Prices have picked up a little in real estate and commodities but a look at any chart would suggest that those improvements were bear market corrections.
    The bond market is an enigma as logic would suggest that it should be falling to reflect the risk. However, as you point out, governments are the largest users of credit and the financial community the largest provider. They seem locked in a corrosive clinch. A deadly embrace that echoes the cold war MAD policy – if either one should upset the status quo of low interest rates they will both suffer severe consequences.
    Governments and financial institutions will rapidly unravel if rates should increase. We have seen glimpses of this already over recent years. Common sense suggests that it cannot last. It will either be hyperinflation or deflation.

    So far, the latter appears to be winning and we should be thankful for it. A deflation will restore the purchasing power of money which has been trashed since the Fed slouched into being in 1913. A terrible beauty indeed.
    Gold, along with most other assets will not withstand a deflation.

    • I understand your concern… but I disagree that I am too dismissive. As I see it, every sign of deflation will be met with more “money printing” and more deflation fighting. The Fed and the Govt. do not want deflation, regardless that it might be, in some ways, beneficial. I stand with a higher probability of higher gold prices and a heavy lean toward inflation, money printing, and more QE.
      The Deviant Investor

  4. also, to support higher gold prices, Paul Volcker raised the prime to 18% in 1980 to squash inflation and gold……….that is impossible now at the US debt level…………just a 1%rise in treasury rates would cost the US the equal of the pentagon budget in increased debt service costs.

    Paul is not walking thru that door.

    • Correct. We cannot afford higher interest rates. As Richard Russell said, “inflate or die.” The Fed and the govt will not choose “die.” More inflation and higher gold prices are not guaranteed, but they certainly seem to be the higher probability bet.
      The Deviant Investor

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