Monday, June 1, 2009

Compare gold in the 1970s to the 2000s

Gold multiplied 5 times from 1970 to 1975 $35 - $185.
Gold multiplied 4 times from 2001 to 2008 $256 - $1011.

From 1975 – 1976 there was a 50% retracement bring the price down to $103.50.
In 2008 gold corrected 44% of the 2000 to 2007 move, low $680.

From 1976 to 1980 gold multiplied nearly 7 times from $103.50 to a peak of $710 This parabolic move happened very quickly once the 1975 high was taken out and prices doubled in 1979.

So the question is how high can gold go? If it were to follow the late 1970s panic, prices could quickly go to between $3500 and $4000.

What I thinks is most bullish now about gold is the shallowness of the corrections. As mentioned above the 2008 correction was just 44% and again the recent correction Feb. to April was again just a 44% correction of what we will now label wave 1 of Three. If we are now in a wave 3 of 3 this is the most impulsive wave. Mybest count now is that the correction is over and gold is on its way to making new highs and possibly the parabolic move that many were predicting the last time it hit $1000.

Gold is a fear play and not an inflation hedge as many suggest. If this were so it would not have dropped from $710 in 1980 to $254 in 2001 while the buying power of the dollar halved.

A melt down in the bonds market may be the catalyst for this fear play.

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