The Fear Index Gives An Important Reconfirmation

2004-DEC-04

The Fear Index has reconfirmed the bull market in gold. Based on preliminary month-end data for November, the Fear Index closed in new high ground in its current uptrend, as can be seen on the following chart.

This chart presents the monthly Fear Index since December 1967. I drew attention to this chart last year when the Fear Index broke above its 23-year downtrend line. See the alert dated December 1, 2003.

The above chart shows important low points in the Fear Index, and includes the prevailing gold price at the time. But it is the level of the Fear Index, and not the price of gold, that was important at these turning points. Presently, we can conclude from the relatively low level of the Fear Index that gold remains good value, and that its price will climb higher still, notwithstanding the price appreciation already achieved by gold.

The calculation for the Fear Index as of November 2004 is as follows:

(US Gold Reserve) * (Gold's Market Price)
----------------------------------------- = Fear Index
                 M3

(261.5 million ounces) * ($448.98 per ounce)
-------------------------------------------- = 1.26%
              $9,300 billion

This new high in the Fear Index suggests that gold's uptrend will continue, which is not too surprising. Given the problems with the dollar and all other reasons to worry, fear about today's monetary environment is rising, which is bullish for gold. People are increasingly opting for sound money in preference to paper currency - for gold instead of dollars.