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« Silverado’s Green Fuel | Main | Klondike Star Mineral Corp »

Is Gold affected by the Base Rate?


There are a number of writers who seem to think that the base rate controls gold prices, absolute rubbish!

Beware these people as they are either; only 12 years old, really thick or had a memory transplant.

A short story by way of anecdotal evidence now follows:

Back in 1980 when I first traded gold I was working for an American company based in The Haag, Netherlands, Europe. I was about to relocate to Edmonton, Alberta, Canada, in January 1981, which I did. Having sold my London apartment I had a reasonable amount of cash in the bank. This presented me with a problem. A nice one, but nevertheless I had to make an investment decision. Doing nothing is still a decision by the way. Do I invest in the gold mania or stay in cash.

Gold was close to $800.0 at the time and guess what? The base rate was 19%. It was neck and neck between the bank and my employer as to who was paying me the most. My wages were the same as the interest I was getting from the bank.

So, if a base rate of 19% could not hold gold back why does anyone think that a base rate of 5% is going to anything to stop gold prices rising? There are a few technical analysts out there who address this issue with considerable expertise; it is worth taking the time to read them thoroughly.

Back to the decision: In 1980 I used graph paper and a pencil to calculate rough moving averages, etc. I concluded that the gold market was too hot and waited patiently for a sell off which came when gold dropped to $500.0. Hoping for a bounce of about one third of the price drop, which was $300.0 I needed a re-tracement of about $100.0. I went to the bank and bought on margin of 2:1. I put £12,500.0 in and the bank matched it. Gold bounced back to $600.0 and I made a tidy profit.

For all the Ice Hockey fans out there it is hard not mention a kid I saw score a 3 times in 17 seconds playing for the Edmonton Oilers. He turned out to be Wayne Gretsky and 3 fabulous years followed before I left Edmonton.

In my humble opinion Gold is on the move and the biggest mistake that we can make is not to be in this market. Whether you purchase the same gold mining stocks that we do or not, is not the issue. We believe that we are still at the starting post for gold and that it has a very long way to go.

18 July 2006

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