The New York Times published what it thought was a definitive take on the vicious sell off in gold in August 1976. Their analysis sounded a lot like the current conventional wisdom—that gold was finished. Gold, however, was about to embark on a historic rally that would push it up more than 700% a little over three years later. Is history about to repeat?
At the time, gold had had a furious run up following the closing of the gold window in 1971. Official forecasts were that the gold price would fall. That could not have been more wrong, with gold’s initial ascent fuelled by inflation and a failing US economy. When gold reversed course for a short period, the obituaries came thick and fast.
When inflation and recession returned in the late 1970s, the second leg of gold’s rise, bigger than the first, commenced, and the parallels between the 1970s and today are even more striking when you examine the numbers.
The mainstream is saying now, as it did then, that gold’s pullback has invalidated fears that rising US budget deficits, easy monetary policy, and weakening economy will combine to bring down the dollar and ignite inflation. But 1976 was not the end of the game for gold. In all likelihood, 2013 will not be either.
Unfortunately, as in 1976, a true economic recovery is not just around the corner. More likely we are in the eye of an economic storm that will blow much harder than the stagflation winds of the 1970s. Once again the establishment is using the declining gold price to validate its misguided policies and discredit its critics. But none of the problems that led modern-day gold bugs to buy gold ten years ago have been solved. In fact, monetary and fiscal policies have actually made them much worse. The sad truth is that as bad as things were back in 1976, they are much worse now.
Schiff is confident that gold will rise much higher, and that its final ascent will be that much more spectacular the longer we continue on our current policy path. Don't believe the mainstream. Just as before, they will likely be wrong again.
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