Monday, May 17, 2010

Gold Bull Argues Gold Has Long Way To Go

In a Seeking Alpha article, John Lounsbury compares gold's present run-up to other assets whose bull markets ended in bubbles; he concludes that gold is nowhere near the performance of those other assets.
It is obvious that the current gold rally has a long way to go to equal the gold bubble of the 1970s. In real terms, the price of gold must more than double to equal the January, 1980 peak. In nominal future dollars the equivalent price could be much higher than the $2,700 shown on the graph with the effects of inflation added.

David Rosenberg, Chief Economist at Gluskin Sheff, wrote this week that gold is short-term overbought. He said the price could pull back to $1,130 without violating the trend lines of the bull market. Gold closed Friday at $1,229 after trading around $1,250 earlier.

Rosenberg predicts that gold could reach $3,000 an ounce in this bull market. He offers a number of different scenarios for gold to rise to anywhere from $2,300 all the way up to $5,700. Rosenberg says that many factors other than inflation are driving the price of gold higher and gold can continue to rally even if there is extended deflation.

Of course, a surge in inflation could drive the price rises into a parabolic climb, which is the traditional finish of a bubble. This is what we saw in 1980 as the price of gold collapsed, even as inflation made its final push. But that possibility is in the future. The price chart for gold is far from a parabolic blow-off top at present....
He ends by saying that he'd be really bullish should gold fall below $1,000.

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