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"Will the U.S. Suffer an Inflation or Deflation in 2009-2010, (or Both)?" | Main | "How to Invest in Barack Obama's "Workers Paradise" "

Posted on March 1, 2009 -
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By John Reizner |


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The gold market in February 2009 is trending up towards its all time high of $1,023 per ounce made on March 18, 2008, after a correction that lasted for seven months. The price of gold in this upward trend may reach as high as $3,700. I conceive that this price move may transpire within the next two years.

As bubbles tend to repeat over history, there are a number of markets that can be instructive in determining the dollar amount and duration of a long cycle.

For example, gold and oil are sometimes analyzed together:
When the gold market last had its heyday in the inflationary 1970's, the price moved from $35 in 1971 and then multiplied over 2,000% in value trading into its 1980 high of $850 during a span of nine years. In the last two years of the move from 1978-1980, the gold price exploded from $200 to as high as $850, up over four times in dollar value.
 
The price of oil tells a similar story. Oil rose from $3.50 in 1970 to almost $40 in 1980, a gain of 1,100% in ten years. The recent rise in the price of oil from $10 at the end of 1998 to $140 in June 2008 represented a rise of 1,400% in ten years.
 
The three long term bull markets in gold and oil from different decades were of similar magnitudes and duration. The current long term bull market in gold (1999-?) may be in the process of completing an upward acceleration.
 
The gold market has moved from a long term trading low of $250 in 1999 to over $1,000 in March 2008, a powerful fourfold increase. The outlook over the medium term may be quite positive for the gold price to multiply over fifteen times (an average of the long term gold and oil examples) from its 1999 low of $250, or towards $3,750 per ounce in 2009-2010. This would take into account an upward acceleration in gold in the next two years of similar magnitude as during 1978-1980. The entire bull duration might represent a completion of a 10-11 year move.
 
Markets may trade in long cycles. There was a long term bear market in stocks from 1966-1982, a period of sixteen years, followed by a long term bull market in stocks from 1982-2000, a period of eighteen years. And now we are in another long term bear market which began in 2000. U.S. financial history is replete with such examples.

 

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