Frequently we are told that gold will go to $2,000, $3,000 or more. We will not get into all of the arguments of attempting to arrive at a reasonable price based on supply/demand, inflation/deflation, etc. but rather to see if there is a pattern we can detect from reviewing some historical charts.
Sometimes we hear in the press that gold is in a bubble or has gone parabolic. What does all of this mean to investors and how do we make decisions based upon these statements?
To us a bubble is a kin to a parabolic move in the underlying stock or commodity which is not easy to explain. Our definition would be a market that has gone straight up and this could be for a period of days, weeks, months or years depending on our time horizon of interest. Looking at charts frequently paints a good picture of what is meant by a parabolic move.
Most of us can recall parabolic moves in many markets so we put some historical perspective to some past parabolic moves of other commodities and stocks, i.e., Nasdaq 100, Japanese Nikkei 225, Crude Oil, Toll Brothers (as a proxy for the housing stocks) and Homestake Mining.
We have presented charts on each of these commodities or stocks below on a monthly basis to best see the long term picture. We are trying to identify when the last obvious resistance was broken to the upside, thus setting up the move into the ultimate parabolic peak.
After a review of charts for each presented to you below, we come to the conclusion that gold will hit its parabolic peak between a low of $2,450 to $3,500. We thus find it interesting that our target price aligns very closely with the projections of others thus giving us more comfort that we are all on target.
|Market (See Charts Below)||Beginning of |
Taking the minimum multiple of 3.5 from the above table and a conservative starting point of 700 for gold, we have the possibility of a peak of at least $2,450. We personally believe there is a strong argument for using $1,000 as our beginning point and this projects a target of at least $3,500.
Nasdaq 100 Index
Remember what most of us recall as the 'internet bubble'?
Japan Nikkei 225
Another great bubble chart is that of the Japan Nikkei 225. Look at that monster rise into January 1990 and rate of the rise. Now this was a parabolic rise.
Remember all the excitement when crude ran up to $147?
Now let's look at gold:
Where is the parabolic move? There is none. Look at this beautiful monthly chart on gold from the low in 2001. This is a chart of beauty and it is not a chart of a bubble, yet.
We are in the camp with Jim Rogers, Bob Hoye, David Nichols, Marc Faber and Pamela & Mary Anne Aden. Up is the direction and the remaining question is how high? With the analysis above we believe we can potentially frame the high between $2,450 and $3,500. A wide range we agree, but we believe we will see signs along the way as price reaches our estimated time frame for the top.
When we start to see gold go parabolic, rising day after day and everyone in the world getting excited and joining the party, then we will know gold is in a bubble. We believe that gold's big move up with be a moon shot like this chart of Homestake Mining from 1932 to 1934. Our challenge then will be to exit before the masses and we see the strong possibility of this event happening within the next 18 months.
We believe investors are being given the rare possibility of a once-in-a-lifetime-opportunity, yes, a parabolic move in gold. The question is what will you do with it and do you need some assistance?
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