Gold -- Parabolic Upswing

Gold: $678 0z.

Parabolic price moves are most easily seen on a linear
chart. The price of gold is on a happy upward curve.
This parabolic would complete at the end of May with gold
at $700-710oz.

Gold likes an inflationary milieu: economic expansion, rising
operating rates, cyclical inflation pressure, and as often
happens in such an environment, a rising oil price. We have
the proper milieu in spades, plus a growing geopolitical dispute
between the West and Iran over the development of the latter's
nuclear fuels. Iran has kited the oil price with success, and
there is no shortage of observers who see economic and/or military
conflict which could result in a shortfall of Iran's large oil
output.

So, the gold bugs and buggettes have run the price of their beloved
up and through the roof. There are several rules of thumb in the
commodities futures markets for measuring when gold might truly
be overbought and at risk and the price is there. However, since
feeding frenzies can often exceed expectations, there's little
that can be said about when an interim top might be struck.

At this point, I cannot argue with the basics of the gold case.
Economic supply/demand measures show continuing cyclical pressure.
Moreover, I doubt the Fed is ready to purposely squeeze the
economy to the point of recession. That type of action could
actually be several years away. And, it is still early to say
that continued economic expansion will involve growing imbalance
between economic supply and demand.

So, I would simply say that although gold may be in a high return
environment over the next few years, the metal is also in a high
risk one as well. An economic slowdown, oil price weakness,
reduced geopolitical belligerency, all could conspire to blow
$100 oz. of foam off that gold brew in short order.

A word about the situation with Iran. The easy worst case scenario
here is that either the US or Israel or both could launch a military
assault on Iran to impair or destroy its nuclear programs. My
guess is that this kind of action, should it come at all, could
easily be several years out in time. After all, Iran has
been muddling along with its programs for years. My concern
centers around another possibility, which is that Iran, grown
tired of taunting the West and unable to solve pressing economic
and social issues at home, might commit the first act
of war. Should Iran lead off, the response from the US could be
much larger and more devastating. Thank goodness I do not take
myself too seriously on such matters. Whew!