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A lesson from history: When the papers say ‘sell’ gold, you buy

History does not repeat itself, but it does rhyme”

- Mark Twain

Whilst doing some background research on the topic of the Bank of England sending Hitler gold that belonged to the Czech republic that they were storing in the vaults of the BoE in 1939, we can across an article in the Sydney Herald from 1939 that we just had to reproduce.

It is from the May 25th 1932 edition of the Sydney Morning Herald:

gold peak price sydeny herald 1939 A lesson from history: When the papers say ‘sell’ gold, you buy

First up notice that the ‘cash-for-gold’ business is nothing new and was alive an kicking in 1939. But more interestingly look at that one headline – “PEAK PRICE – SELL NOW”.

This is very reminiscent of the fear mongering you’ll see into today’s MSM. But more crucially was this piece of advice a ‘good’ piece of advice or ‘bad’ advice?

In 1939 the price of gold was £7.72 (yes gold really was that cheap at one point in time). But 8 years previous in 1931 the price if gold was just £4.25. Or in other words gold had increased by 82% in those 8 years.

So what happened to gold price over the next 11 years? After all if you took this newspaper’s advice to “SELL GOLD” on the back of the fact that it had already had a good run the gold price you’d expect that the gold price fell over the next few years.

It didn’t, in fact it rose all the way to £12.50 by 1950 – that represented another 62% move to upside for the price of gold.

On a chart the folly of selling your gold on the back of the advice in this 1939 newspaper article is pretty clear:

gold price £s 1931 50 A lesson from history: When the papers say ‘sell’ gold, you buy(click for sharper image)

So how does this compare with today? Well we have the same screaming headlines, here are just two of many recent examples:

Then there is article in the NDTV in India that we talked about last week, it noted:

On an average, Gold prices have surged by nearly 20 per cent each year, for the past 11 years. This indicates that the metal has its fair share of a bull run. Buying gold at current level is buying at record high prices. It would be a good idea to spread investments across financial products.”

[emphasis ours]

Again using the example that because gold has had a good run in the past few years the gold price simply must have peaked.

Sound familiar?

You see here’s the thing about bull markets, they nearly always end up in a mania phase. Just take the recent housing bubble in the USA as a good example. First up you get front covers like this one from 2006 from Time magazine, which should be a bright red flashing light the bubble is about to burst.

Home weet Home June 13 2005 A lesson from history: When the papers say ‘sell’ gold, you buy(click for sharper image)

And when the Federal Chairman himself is declaring “There’s no housing bubble to burst”, this should also be a strong sign that its time to leave the ship before it runs aground. This from the Washington Post of October 2005:

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.

[emphasis ours]

On a side note just look at how badly Bernanke didn’t see the biggest housing bubble in the history of the USA about to burst – and we listen to him now because?

So cast your mind back to summer last year when the gold price reached $1920 – where were the front cover splashes talking about ‘everyone buying gold’? Nowhere, gold prices are still buried deep in the nether regions of even the financial orientated papers and when it is mentioned it is to talk about ‘peak’ prices.

Now it is very likely that gold’s run will end in a spectacular mania phase, but we will see that happening because gold will start to be featured on the front of magazines like Time – the thing is it will take gold prices much, much higher than where they are now for that to happen.

In short, history tells us that when the MSM say gold has peaked – you buy.

Related posts:

  1. Glastonbury Festival: Charting a history of inflation
  2. Putting the $100 sell off in gold in perspective
  3. The UK Government borrowed more this August than at any time in the country’s history
  4. Gold price falls as the EU gives a consummate lesson in the art of expectation management and spin
  5. Golden history of Flintshire government site revealed

Link to this article: : http://www.goldmadesimplenews.com/gold/a-lesson-from-history-when-the-papers-say-%e2%80%98sell%e2%80%99-gold-you-buy-6533/

Posted by on Apr 2 2012. Filed under Analysis, Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.
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