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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.
Multiple for
the Final Move:
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Market (See Charts Below)
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Beginning of
Final Move
|
Top
|
Multiple
|
|
NASDAQ
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1,500
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5,200
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3.5
|
|
Nikkei
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7,000
|
39,000
|
5.6
|
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Toll Brothers
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16
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58
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3.6
|
|
Crude Oil
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40
|
147
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3.7
|
|
Homestake Mining
|
140
|
500
|
3.6
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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.
Toll Brothers
Crude Oil
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.
Gold (Monthly)
Gold (Daily)
Homestake Mining
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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Dudley Baker
PreciousMetalsWarrants
Dudley Baker is the owner/editor of Precious Metals Warrants, a market
data service which provides you with the details on all mining & energy
companies with warrants trading on the U. S. and Canadian Exchanges.
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