In the opening paragraphs of InterMarket Forecasting’s April 4, 2003 edition of Investor Alert, Economist Richard Salsman writes:
Now, more than ever, equity investors should pay attention to the message being delivered by gold. Let the neophytes get their ‘news’ from biased reporters like Peter Arnett and Geraldo Rivera — or from the media sheep who nip at the heels of U.S. military leaders in daily briefings at Central Command in Qatar. And let the Keynesians persist in dismissing gold as a ‘barbaric relic.’ It’s no such thing — and in recent weeks it’s been predicting a swift and decisive U.S. defeat of the real barbaric relic, a.k.a. Saddam Hussein.
A rising dollar-gold price reflects a depreciating dollar and a ‘flight to safety’ — which is bearish for U.S. equities. In contrast, a declining gold price reflects an appreciating dollar and a return to risk taking — which is bullish for U.S. equities. Gold provides an objective, market-based measure of how the war is going, whether the U.S. is likely to achieve victory and how long the war will last. During the early 1970s, amid the disastrous Viet Nam War, the gold price increased by nearly 430%, from $35/ounce in 1968 to a peak of $185.4/ounce (average) in December 1974; thereafter the gold price began to decline — an indication that the badly-fought war would soon end. It did — when the last U.S. troops pulled out five months later (in May 1975). [Richard Salsman, CFA, Investor Alert, April 4, 2003]
Several pages later Mr. Salsman adds a few caveats, under the sub-title “How to snatch defeat from the jaws of victory“:
Much as we’re pleased with the U.S. war effort to date — and see it as (near-term) bullish for U.S. equities — we’re not nearly as bullish as we could be.
There are two main reasons for this. First, current evidence indicates that the U.S. government might resume, after its military victory, its haggling with the terrorist-sponsoring U.N. and giving it (and its anti-liberty principles) sway in Iraq. If the U.S. does that, its military victory will have been wasted and, however slowly, Iraq again could become a threat. After all, similar mistakes were made in Afghanistan — where Al Qaeda and the Taliban (and the U.N.) still have a presence… [Richard Salsman, CFA, Investor Alert, April 4, 2003]
All in all a very good read.