|  JUN 1994

Gold And The Business Cycle by Martin J. Pring

Gold And The Business Cycle by Martin J. Pring Well-known market analyst Martin Pring takes a look at the relationship between the price of gold and the business cycle. Why do major swings in the price of gold occur? Over the years, many views have been put forward as to the causes of major swings in the price of gold. The news media consistently tries to link price movements of financial markets to news events. Indeed, it seems rational that market participants make decisions based on the latest-breaking news. In the case of gold, the assumption is often made that the fear factor is at work. An assassination attempt or an outbreak of hostilities or a similar development seems to be a logical justification for a rally. This is often true for a day or so, but not on a long-term basis. The importance of the news in question usually depends on whether the gold price is in a primary bull or bear market. In 1979, for example, the Soviet Union's invasion of Afghanistan was a positive influence on the price. At that time, gold was in a primary bull market and the invasion represented icing on the bullish cake. The invasion exacerbated a trend that was already in force. On the other hand, the war between Iran and Iraq, which broke out in 1981, should, in theory, have been a much more positive factor for gold in view of its implications for higher oil prices.As it turned out, it was not because gold was then in a primary bear market. In retrospect,the rallies that took place in response to the war turned out to be temporary interruptions in an ongoing declining trend.

by Martin J. Pring