By John Reizner |
I wrote in my recent article on the outlook for gold:Why Gold May Begin the Last Leg of its Bull Market Sooner Than You Think, posted February 23, 2009, that I was anticipating a possible acceleration phase or blow-off top in the gold market price (now at $951.10 per ounce).
Gold easily surpassed its 1979 high of $850 in 2007, after a long bear market for the precious metal. I see a possible sharp upward price movement in the next year or two as being similar in form to the blow-off top in gold in 1978-1980. At that time, the gold market price moved from $200 to $850 per ounce. If we look at that particular dynamic price increase more closely, we see that the move from $425 to $850 occurred in the short time span of two months in the first quarter of 1979.
If we were to apply that picture from the 1970's bull market in gold to where we are now, gold may more than double from its current price of $951 or may even trade higher.
The economic and political events that might accompany such a dynamic price increase are varied. Rapidly increasing inflation in the next year or two as a result of Fed Chairman Bernanke's extreme "monetary ease" could ignite a surge in the gold price.
A loss of confidence in the Obama economic policies from our trading partners and in the relative stability of the dollar as a result of the rapid increase of U.S. government indebtedness could result in a run on the dollar, economic poverty and a tide of increasing gold prices. A situation could emerge as even U.S. consumers may not wish to hold U.S. dollars, and may opt instead to hold gold or more stable foreign currencies.
This is a very negative picture, and one that I present for the purpose of giving fundamental weight to a technical price outlook for the gold market. These events may or may not happen, or other destabilizing events may take a different form. However, it appears to me that there may be a strong likelihood that our country may experience greater inflation down the road along with a falling U.S. dollar - and this is good for gold prices.