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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, January 15, 2008

Gold Price

The weekly gold price macroeconomic indicator reached new
peaks in late 2007, although it has settled down recently.
The microeconmic indicator has also reached record levels
reflecting higher extraction costs.

The gold price has become more volatile relative to both
indicators since 2005, as speculative interest has intensified
greatly. At $902. oz, gold is in a mania staging area after
a sharp run up over half 2 '07. It is reminiscent of the
period running from latter 2004 through mid-May 2005, when gold
ran up from $460 to an interim peak of $735. The top in May
completed a parabolic up move. Gold went into a mania staging
area then when the price topped $600, but quickly fizzled. At
present, gold must top $930 soon to move into a more robust
mania. Many gold prognosticators see gold at $1000. oz in 2008.
Should gold move quickly up to $1000 in the next few months, it
would move into full bubble mode, with large upside and massive
downside when the bubble pops.

My macro indicator has started to diverge negatively from the
gold price trend, so it will be interesting to see whether gold
can stay strong or whether a correction might be in store. Gold
is on another parabolic up move dating from early 2007, and the
curve is set to bend back in Feb. 2008, suggesting that a top of
consequence could be coming soon.

The monetary component of the macro indicator was signaling
inflation of 5-6% for a good decade, but with high US and
Asian productivity growth, it never happened. Since 2004, that
indicator has turned far more somber, and is now pointing to
a deceleration of US inflation several years out, down to
1-2%. The shorter term inflation thrust indicator is still
pointing up, but has lost a little momentum.

Given that gold is in a mania staging area, it carries both high
upside and downside risk, depending on the degree of speculative

I include a link to a weekly gold chart. Note when you look how
extended the MACD formation is to the upside. Chart.

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