Just about everything we do has an element of Time to it. We work for X dollars/Hour. We pay bills a month at a time. We take a weeks vacation. Even money has a Time component, commonly known as interest. Gold has often been compared to money in a negative light because "Gold" pays no interest. While that fact mat be true, it fails to take into account the time component of Gold. Understanding precisely how Gold & Time interact is critical to comprehending why the dollar price of gold, over the next decade, will continue accelerating to the upside.
Gold has a very unique property in that it captures the value of the increased productivity of individuals over time. For example, Gold bought a lot more cotton after the cotton gin was invented, because the productivity of your average cotton farmer skyrocketed. Increased productivity is really just a savings in Time. Less Time required to produce the same amount of goods. A stable currency (like Gold) allows the savings in Time to be captured by anyone. Paper money is supposed to function the same way. Yet, we live in a world where our paper money buys less and less. The reason Gold is able to capture value where paper money loses it, is because the supply (thanks to mother nature) of Gold is very stable. In like fashion, an exponentially growing supply of paper currency enables the paper aristocracy to steal all the value from the productivity gains of the working class.
A basic tenet of economics states: price (value) is a function of supply and demand. If you have a stable supply of something, like Gold - you effectively change one of the 3 variables in the preceding equation into a constant. As a consequence, the two variables left will move in tandem, meaning either both go up - or both go down. So, lets plug in a real life example into the above tenet. Lets say the productivity of the working class is in demand & we are trying to determine what it should be valued at in terms of Gold. Since we know the Gold supply is a constant, The two remaining variables (productivity & value) must travel in the same direction. Find a way to increase productivity and the value of Gold must go up. Thanks to technological advances and more efficiently run businesses, the increased productivity of the working class guarantees Gold will buy more in the future than it does today.
This property is what makes Gold the Ideal storage facility for your labor. In a way, Gold is a place to keep Time, which is all we really have. With each passing day, the time we have left on this planet diminishes. In paradoxical fashion, this has the effect of making our remaining time, more valuable. And like Time, Gold will just become more valuable the longer you live.
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There is another very under rated feature of the current Gold bull market which manifests itself as a form of timing. The movements of the 21st century Gold bull, on the surface, may appear random & chaotic. But like most living things, there are discernible patterns of movement repeated over and over. Cycles, or stated another way, this Gold bull has Rhythm. Look at a gold chart above for the last decade, and pick out the last 5 major peaks. (sep 2011, nov 2009, mar 2008, may 2006, dec 2004). Pay particular attention to the Time between each peak. They are all 19-22 months apart. If that is not rhythm, I don't know what is.
Long term, the fundamentals in a given market will determine what direction a market trends. In the short term however, movements within a trending market are driven by the emotions of those involved. Long rallies ignite GREED, sharp pullbacks turn that greed into FEAR, and then sustained sideways movement turns that fear into APATHY. Once apathy takes root, you can be sure another rally is on the way & the cycle has begun anew. The last 8 years in the Gold market has seen this greed-fear-apathy cycle playout many times. Right now, the Gold market is in between fear & apathy. A few more months of sideways trading will increase the level of apathy to a point where a long rally is imminent.
Breaking down the 19-22 month cycles Time-wise within a bull market, you get about 1/3 greed, 1/3 fear, and 1/3 apathy. The irony of that split lies in the fact that, despite being a bull market, the bulls are getting what they want only 1/3 of the time, while 2/3 of the time - the bears are having it their way. Because bulls don't spend much Time getting what they want, many get demoralized, and ultimately thrown off the bull. The bears, meanwhile, are energized by a market giving them what they want, most of the Time. So the bears get sucked in to the wrong side of the market, while the weak handed bulls get thrown off. Classic bull market action.
Considering the last major peak was Sep 2011, the Rhythm of this beast suggests the next major peak will be in spring 2013 - a little over a year from now. The way we see it, here at Mytwocent$ - there will be about 4-6 more months of apathy breeding. Followed by about a 6-8 month rally, taking Gold to new highs sometime next spring. Having seen this bull move Time and Time again, Bagholder can attest; higher prices are on the way. With human nature as a constant, you can be sure - this Time - will be no different.
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