Ignore Banks’ Bearish Statements on Gold
By Jeff Clark, Senior Precious Metals Analyst
In the world of finance, opinions can shift dramatically. Recently, major players like Goldman Sachs have revised their gold price expectations, projecting a drop to around $1,200. Other institutions, including Credit Suisse and UBS, share a similarly bearish outlook, while Citigroup claims the gold bull market has concluded. However, should we really heed these warnings?
Not necessarily. As we’ve noted in the past, analysts have frequently missed the mark regarding gold during this bull market. Moreover, history offers valuable insights; this scenario isn’t new. During the significant gold bull market that peaked in 1980, gold endured a prolonged downturn of 20 months. Every time it seemed to stabilize, it dipped once more, ultimately plummeting 47 percent from December 30, 1974, to August 25, 1976.
For gold investors, 1976 was likely a challenging year. With prices already in decline, the situation appeared grim. Curious about the sentiments of that era, I sought to uncover what experts were saying.
Along with my family and local librarians, we sifted through print resources (considering that digital archives were not yet prevalent) to unearth some striking quotes from that pivotal year. Here’s what we discovered:
Amidst all this, it’s essential to understand the broader context: during the summer of 1976, the IMF conducted three major gold auctions, flooding the market. Both the United States and the Soviet Union were selling gold, and it wasn’t a secret that the U.S. aimed to phase gold out of the monetary system, having terminated direct dollar-gold convertibility on August 15, 1971.
What the Experts Said About Gold in 1976
Below are notable public statements from 1976. While some comments were not entirely negative, they reflect the prevailing sentiment towards gold at the time—the mood is strikingly reminiscent of today. As we explore these perspectives, remember that gold prices hit their lowest point on August 25 before embarking on a remarkable 721 percent climb over the following three-and-a-half years.
[1] “For the moment at least, the party seems to be over.” – New York Times, March 26.
[2] “Though happily out of the precious metal, Mr. Heim is no more bullish on the present state of the stock market than any of the unreconstructed gold bugs he’s had so much fun twitting of late. He’s urging his clients to put their money into Treasury bills.” – New York Times, March 26.
Me: These remarks echo today’s critiques of gold investors. I can’t help but wonder if Mr. Heim was still “twitting” a couple of years later.
[3] “‘It’s a seller’s market. No one is buying gold,’ a dealer in Zurich said.” – New York Times, July 20.
This statement turned out to be misleading; it was an incredible buying opportunity for those willing to act contrary to the prevailing sentiment.
[4] “Though the price recovered to $111 by week’s end, that is still a dismal figure for gold bugs, who not long ago were forecasting prices of $300 or more.” – Time magazine, August 2.
Ultimately, those “gold bugs” were proven correct; gold reached $300 just three years later—a 170 percent rise.
[5] “Meanwhile, the economic conditions that triggered the gold boom of 1973 through 1974 have largely disappeared. The dollar is steady, world inflation rates have come down, and the general panic set off by the oil crisis has abated. All those trends reduce the distrust of paper money that moves many speculators to put their funds in gold.” – Time magazine, August 2.
This view was short-sighted, as circumstances shifted dramatically later in the decade. Does this remind you of today’s forecasts suggesting the reasons for investing in gold have vanished?
[6] “Our own predictions are that gold will go below $100, with some hesitation possible at the $100 level.” – Mr. Heim, New York Times, August 19.
Yes, this is the same gentleman as mentioned in the previous quote. I wonder how many clients remained with him in the coming years.
[7] “Currently, Mr. LaLoggia has this to say: ‘There is simply nothing in the economic picture today to cause a rush into gold. The technical damage caused by the decline is enormous and it cannot be erased quickly. Avoid gold and gold stocks.’” – New York Times, August 19.
This comment was delivered just days before the market’s low. A critical lesson for technical analysts!
[8] “‘Gold was an inflation hedge in the early 1970s,’ the Citibank letter states. ‘But money is now a gold-price hedge.’” – New York Times, August 29.
It seems they were mistaken. This feels reminiscent of those who claimed in 2011 that gold wasn’t worth investing in because it wasn’t “backed by anything.”
[9] “Private American purchases of gold, once legalized at the end of 1974, never materialized on a large scale. If the gold bugs have indeed been routed, special responsibilities fall on the victorious dollar.” – New York Times, August 29.
Since then, the USD’s purchasing power has plummeted—down 80 percent since that confident proclamation of dollar “victory.”
[10] “Some experts, with good records in gold trading, declare it is still too early to buy bullion.” – New York Times, September 12.
It’s regrettable they missed the opportunity.
[11] “Wall Street’s biggest brokerage houses, after having scorned gold investments during the bargain days of the late 1960s and early 1970s, made a great display of arriving late at the party.” – New York Times, September 12.
No further comment required.
[12] “He believes the price of bullion is headed below $100 an ounce. ‘Who wants to put money over there now?’” – Lawrence Helm, New York Times, September 12.
His timing couldn’t have been worse, as gold had already hit its bottom two weeks prior.
[13] Author Elliot Janeway, whose book jacket claims “Presidents listen to him,” expressed disdain for gold investments: “Any argument against putting your trust in gold, and backing it up with money, goes double for silver: silver is fool’s gold.” – New York Times, November 21.
Mr. Janeway must have regretted those words; from that moment to silver’s peak of $50 on January 21, 1980, silver surged 1,055 percent!
[14] “Mr. Holt admits that ‘in 1974, intense speculation caused the gold price to get too far ahead of itself.’” – New York Times, December 19.
Does any of this sound familiar? Indeed, it was a tumultuous time for gold investors. However, those who focused solely on price without considering the underlying fundamentals dispensed poor advice and missed great opportunities.
Despite the negative atmosphere, not every voice in 1976 was pessimistic; many remained confidently bullish. These investors were likely seen as outliers—much like some of us today. Here are a few more notable remarks from that year:
– “Many gold issues, in fact, are down 40 percent or more from their highs. Investors who overstayed the market are apparently making their disenchantment known. The current issue of the Lowe Investment and Financial Letter states, ‘We are showing losses on our gold mining share recommended list… but keep in mind that these shares are for the long-term as investments.’” – New York Times, March 26.
This sentiment mirrors what you might read in a Casey Research newsletter.
– “The time to buy gold shares,” [James Dines] asserted, “is when there is blood in the streets.” – New York Times, September 12.
Jim made this observation within two weeks of the market’s absolute low.
– “We’re recommending to clients that they hold gold and gold shares,” [C. Austin Barker, consulting economist] noted. “The low-production-cost mines in South Africa might be interesting to buy for the longer term because I see further inflation ahead.” – New York Times, September 12.
Those who heeded Mr. Barker’s advice were rewarded with substantial gains.
– “The probability of runaway inflation by 1980 is 50 percent… In light of this, the only safe investments are gold, silver, and Swiss francs,” remarked Harry Browne on November 21 in the New York Times.
– “In the longer run, [Jeffrey Nichols of Argus Research] believes gold’s price trend ‘is much more likely to be upward than downward.’” – New York Times, December 19.
Over the long term, he was correct.
– “‘I think the intermediate outlook for gold is a period of consolidation and a bit of dullness,’ states Mr. Werden. ‘However, six or nine months from now, we could see renewed interest in gold.’” – New York Times, December 19.
He was indeed right; within nine months, gold rose 13.5 percent.
– “Mr. Holt offers advice to investors taking tax losses on their South African gold shares—some of which are selling at just 30 to 35 percent of their peak prices in 1974. ‘If leverage has worked against you on the way down,’ he reasoned, ‘why not take advantage of it on the way up?’” – New York Times, December 19.
Timeless advice for today’s investors, too.
– “What’s his [Thomas J. Holt] prediction for the future price of gold? ‘A new high, reaching above $200 an ounce, within the next couple years.’” – New York Times, December 19.
This forecast proved to be conservative, as gold surpassed $200 just 19 months later, in July 1978.
The presence of positive voices amid the downturn serves as a powerful reminder. Those who remained steadfast in their beliefs reaped the benefits in the long run.
Additionally, there were some intriguing observations during this period. For instance, gold stocks had suffered for so long that some advisors proposed strategies we still encounter today:
– “It is probably too late to sell gold shares, the stock market’s worst-acting group these days, except for one possible strategy: selling to take a tax loss and switching into a comparable gold security to retain a position in the group.” – New York Times, September 12.
It was already well-known that gold often behaves differently than broader market trends:
– “You might put a small portion of your money into gold shares and pray like the dickens that you lose half of it. In that way, the chances are that if gold shares go down, the rest of your stock portfolio will go up.” – New York Times, September 12.
Gold miners, much like today, were key to generating revenue and employment. From Time magazine on August 2:
– “South Africa, the world’s largest gold producer, is being hurt the most. The price drop will cost it at least $200 million in potential export earnings this year.”
– “Layoffs at the gold mines would worsen the situation—unemployment could intensify South Africa’s already volatile racial unrest.”
The Soviet Union, ranking as the second-largest gold producer, also felt the impact, relying on gold sales for essential hard currency.
Gold was often leveraged for various financial operations:
– “The international gold market was also roiled yesterday by a report by the Commodity News Service indicating that Iran was negotiating to lend South Africa roughly $600 million, backed by 6.25 million ounces of gold as collateral.”
Echoing our current political landscape, misguided statements also emerged from U.S. politicians. From the New York Times on August 27:
– “The drop in gold bullion prices from $126, which was the average at the first IMF auction on June 2, provoked the Swiss National Bank to criticize Washington’s childish attitude toward the metal. Swiss bankers advocate for a more significant role for gold as a discipline against unrestricted paper money printing.”
The relevance of this statement remains strikingly profound even today.
Lastly, consider India’s approach to managing its precious metals market, which has led to smuggling. From the New York Times on August 27:
– “India announced it was resuming its ban on the export of silver. The government believed the ban would mitigate the outflow of silver, which is believed to amount to the world’s largest silver hoard. However, dealers predicted the ban would not affect tightly ingrained smuggling practices that allow Indian silver to continue flowing into the global market.”
The Mood Today Compared to the Mid-1970s
The prevailing mood now is strikingly similar to that of the mid-1970s. The same concerns, fears, and confusion that characterized the gold market during that time are echoed in today’s discourse. Yet, there were also those who maintained a broader perspective and remained committed. Nearly every statement made in 1976 resonates with today’s context. This small sample represents only a handful of viewpoints; many more similar comments likely existed during that period.
Ultimately, history teaches us the value of patience. It took three years and seven months for gold to reclaim its December 1974 peak and just another 18 months to surge to $850. Today, that would equate to gold falling until June and not reaching its $1,921 record until April 2015, followed by a climb to $6,227 by November 2016. Would you wait that long for a fourfold return?
This retrospective on history reinforces our confidence in the trajectory of gold investments. I invite you to join me and the team at Casey Research in recognizing this historical lesson and staying the course with our investments.
So, what will future generations read about today?
– “Buy gold. It’s going a lot higher.” – Jeff Clark, Casey Research, March 24, 2013.
Sincerely,
Jeff Clark
for Economic Prism
[Editor’s Note: Gold is likely to rise, but gold producers are expected to outperform even more. Right now, you have a unique opportunity to learn from investing legends like Doug Casey, Rick Rule, and Bill Bonner about selecting junior gold explorers that could yield life-changing gains. This will be discussed in our upcoming free web video event, Downturn Millionaires. To find out more, click here.
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