Gold entered a price mania in early 2006. There have been frothy
price moves up in 2006, 2008, and again this year, when gold
closed above the $1100 oz. mark. By my analysis, we have not yet
seen a classic bubble in the price. Gold is now strongly overbought
and we have witnessed a parabolic price move up over this decade,
but a classic bubble would suggest that gold close out 2009 at
precisely $1500.
There are plenty of players in the gold market who see a bubble as
a classic and fitting climax to a lengthy period of strong global
liquidity growth and profligacy in the management of monetary and
fiscal policies. And they are playing the market on the long side for
a bubble that would take gold to $1500 oz. or higher on signs that
excessive monetary and fiscal policy point to a greater debacle. The
clincher for the bubble bulls is their belief that even though the
globe's central bankers and budget managers see the risks of
perceived continued profligacy, they will ultimately ignore them or
act only in the eleventh hour under duress.
I have to confess I no longer possess the interest or talent for such
grand thinking. I follow a more humble / bumbly road that usually
brings me out close to the truth, but hardly in leaps and bounds.
For now, suffice it to say gold is strongly overbought, but should this
current frothy period continue into 2010, gold could be pushed to
$1265 oz. before a correction of up to 25% could take the metal
back down to the $950 oz. area by spring. How's that for winging
it!
I do not play in markets I consider overvalued, with the exception
of the Treasury market where price behavoir is more predictable.
Going forward, I am going to pay less attention to the gold market
until its vulnerability become far more apparent. Frothy markets
are dangerous to short because they can get more frothy and
bubbly. For a long in gold, I would be looking for $600 oz. At this
point, I suspect at least a few readers would say: "Yeah, good luck
with that."
Long term gold chart.
1 comment:
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