About Me

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 !!!

Monday, March 03, 2008

Gold Price -- The Bubble Draweth Nigh

Gold printed slightly above $990 oz. today before an after-
noon close of $982. By my reckoning, if gold closes above
$1000 oz. any time over the next year or so, then it is in
a price bubble that could reach $1500. The $1500 price
would be a triple over the early 2006 price of $500.

If gold does cross the bubble threshold of $1000, there is
no compelling reason that it must advance to $1500 or any
price in between. Bubbles occur rarely in any market and a
double or triple over the breakout price ($500 oz. in this
case) is a reasonable range for an unreasonable price move.

If gold does enter the bubble range, it does, prima facie,
suggest substantial price upside. With the upside potential
comes large downside price risk, which I would now put at
$250 - 400 oz.

You can make good money in a bubble on the long side as long
as the fundamentals are positive. Danger comes especially
when fundamentals diverge from a rising price. But large
downside can also occur in moments of doubt which can trigger
panic even if the fundamentals do not head south. These are
facets of a high return / high risk market.

My gold price macroeconomic indicator remains in a pronounced
uptrend for now.

The near term technical situation is interesting. Gold is
strongly overbought, and is just completing a 13 month long
parabolic upmove. The situation suggests a range of short term
possibilities running from consolidation to sharp correction.

The macroeconomic indicator is available only weekly. If you are
playing the gold market and want some daily reference, I would
watch the oil price and a broad range of industrial commodities
prices.

Scroll down to the end of the 2/25/08 post on gold and you
will find a chart link that may be of interest. Good luck.

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