Gold Price (And A little on Oil, Too)

My macro and micro economic indicators continue to place gold as fairly valued at between
$650 -750 oz. At $1428 oz., There remains a huge financial armageddon premium in the price.
The macroeconomic directional indicator has been confirming a rising gold price since late
2008, in line with the trend of gold. The directional indicator has been very good in suggesting
the proper trend for gold, but obviously understates the market's perception of gold's value.

My 10 year base technical  trendline for gold now stands at $820 oz. This suggests that there is
a little over $600 of armageddonish froth in the price. This compares to only $100 of such froth
at the end of 2008.

Over the past 10+ years, gold has performed most closely to the oil price in terms of the power
of price momentum among the macro indicators. Both have advanced about 5x over the past 10 or
so years. Since the heavy inflations experienced by most of the major economies over the past
100 - 120 years all started in the fuels trading pits, there is precedent for the oil / gold "tie".
Moreover, there are traders who use the developments in the petroleum sector to speculate on
gold. Over the past 10 years, when an ounce of gold buys 13 or more barrels of oil, oil has been
cheap relative to gold. When gold has only purchased 7-8 barrels of oil, it is gold that has been
the better performer in subsequent periods. Gold has been expensive relative to oil since late
2008.

West Texas crude at $108 is only about $12 bl. below an area that I would rate as a bubble zone.
Activity in this market remains intensely speculative given the very large carry stocks of crude
that are available. Thus to say that gold has been expensive relative to crude in recent years is
not to suggest that crude is a bargain. Far from it.

To confound matters in oil vs. gold, oil is now overbought against its 40 wk m/a, while gold,
which has been muddling along since the autumn, is not overbought on a comparable basis.

Back in Dec. 2006, I begged off embracing a stocks forecast for 2007. My argument was that the
globe had experienced a tranquil period of rising confidence and that naturally building economic
imbalances were bound to upset the tranquility and high confidence. The sentiment was spot on
but understated shall we say. Now, going forward, we have a chance for a less volatile period
and a recovery of business confidence which could extend out 4-5 years as the global economy
repairs. I am curious whether gold will hold its strength if a calmer economic climate eventuates
as I expect.

Gold price (chart)