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"The Level of Confidence in the Stock Market and Our Social Contract" | Main | "Don't Fight Yesterday's Investment Battle: Why Betting on Last Year's Bull Market Always Fails"

Posted on October 24, 2007 -
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By John Reizner |

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Editor's note: please see the current update to this article.

In my article, When Gold Speaks a Thousand Words, published on this website on April 23, 2007, I posited my very positive view on the gold market. I wrote how that view, held by me for some time, had led me to make several gold coin and bullion purchases in the $300's and $400's per ounce in recent years.
Since that time, and especially quite recently, gold has rallied strongly, and has risen past its 2006 high to a present price of approximately $753.99. Oil has also risen in a spectacular fashion into the high $80's per barrel. These support my conclusion in another article I penned for this website, published on February 26, 2007, "Inflation and the Stock Market: Does Anyone Remember the Seventies?," that the gold price, oil and oil service companies stock price booms we have witnessed for the last few years are quite similar to the booms in like instruments last seen during the late 70's. However, that boom in the late seventies and early eighties represented a long term peak in oil prices around $40 - per barrel and the gold price around $850.

The gold price is now, over 25 years later, and after a brutal long-term bear market, approaching that peak area of $850 per ounce reached previously in 1980. This current powerful leg up in the gold market stimulated just lately by the subprime crisis, the ensuing credit and housing crunch, and what I believe is the underlying inflation in some sectors of the economy means one of three scenarios for gold.
The first scenario is that the current surge in gold and oil prices represent an area of peaking action, where after some time of forming a top (with the gold price possibly between $800-$850), they will correct for some time and the excitement in these investments will abate. I feel that this scenario is less likely to unfold.
In the second scenario for the gold market, the metal will find short-termtemporary resistance at the old 1980's highs and will correct temporarily, perhaps for many months or, while testing that upward resistance level perhaps several times, before breaking through the old top and surging to uncharted territory on the upside, embarking on a new and powerful
leg in the gold bull market.
The third scenario rests on examining the history of the gold price bull market during the entire decade of the seventies, which started after the dollar was no longer redeemable into gold after the monetary crisis of 1971. The gold price rose powerfully into the mid-seventies, only to peak out and go lower, before taking off again into the second inflationary wave of that decade and multiplying many times in price to $850. This scenario, if it happened today, would mean that the gold market price would reach a temporary peak in the coming year or so, then decline into a lull that could last over a year, before beginning another powerful ascent that would dwarf anything we have seen to date.
I feel the odds favor the 2nd or 3rd scenario, so I am personally holding onto my gold coin and bullion positions. I feel, as I said in my February 26th, 2007 article, cited above, that "the
jury has rendered a verdict of 'bull market'."



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