1:1000 Going To 50:1000

Varying Public Interest in Gold -

Prior to the late 1970s gold rush, there was only 0.1% of all investors interested in anything gold (shares and/or bullion). Another way of stating the same statistic is to say ONLY 1 in every 1,000 investors was opened minded to gold. Then in mid-1976 the golden tide began to rise - and by early 1979 the group interested in gold and other "stuff" had risen to 5% - or 50 per 1,000 investors.

About a year ago I ran across similar statistics for 1996 - the gold wave was again down to its ebb levels of 1/1,000. This data I got at one of the annual Gold Conferences in the U.S. In consideration of the rather substantial gold market decline since then, I would venture a considered guess that the investor group today interested in bullion and/or gold shares is perhaps even lower than 1:1,000.

As a market seer has correctly pointed out "the relative value of "stuff" (read commodities) is probably at a 17 year low. And in light of Alan Greenspan's recent clear warning - translated into the vernacular - "STOCKS ARE TOO DAMN HIGH!" - I have NOT PENNY ONE invested in common stocks nor bonds. The relative risk is bloody too high for all but the most aggressively audacious speculators.

I submit that both the paper and real markets are currently in the throes of secular reversals. Both this Bull and this Bear are 'onry' old critters, and will not die without a good fight. Nevertheless, historic precedent demonstrates their days are numbered. And quite personally, I feel much safer clutching all my hard-asset marbles, than to be out there "on the thin ice in the middle of Lake Dow" with the irrationally ebullient hordes, shouting "this time it's different," and "we expect at least a 14% annual return during the next 10 years."

Based upon considerable research I am forced to conclude that the numbers of gold investors will eventually explode by at least 50 times - repeating financial history - when the precious metals bull market gets into high gear again. In essence we will see public gold interest at the former 50/1,000 level once again. Moreover, I strongly suspect - based upon my long-term analysis of market excesses - the ratio will most probably surpass the late 1970's figure. The swing of the pendulum tends to be equal at both extremes.

If I were to make a musical analogy to the current gold market situation, I would say it is the "calm prelude" before the "storm" in Rossini's William Tell's Overture.

Relative Value of XAU to Stocks -

It is not unreasonable to believe that someday the current financial market scenario will be published as an Addendum to Charles Mackay's classic on Manias, Bubbles, Panics & Crashes: "Extraordinary Popular Delusions and the Madness of Crowds." Furthermore, Friedrich Nietzsche described the currently irrational stock market environment exactly, when he observed: "Madness is rare in individuals, but in groups, political parties and nations, it is the rule."

When we look at precious metals stocks by comparison, we see quite a different picture. Relative to common stocks (S&P 500), the XAU is now at a four year low - just at the relative low observed in late January 1993. The chart above of the XAU/S&P 500 clearly demonstrates the XAU is presently just a little more undervalued than the time just prior to the tremendous gold stocks bull run of that year - when many gold mutual funds subsequently appreciated 70-110%, and many second tier exploration and development companies soared hundreds of percent in price. The charts suggest we are nearing another price serge in gold and silver shares relative to the stock market. In support of this interpretation is the fact that both curves are above their 50 day Moving Average - just as they were in early 1993.

Just as all markets cannot ignore the immutable characteristics of all cycles, so again will the market place begin to recognize the relative cheapness of the XAU vis-à-vis the stock market.

vronsky (March 1997)