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Bob Kirtley, Gold Prices (11 clicks)
Long/short equity, special situations, precious metals
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The purpose of this article is to attempt to determine how much the current gold bull market has left to offer, both in chronological and dollar terms. If one presumes that this gold bull is going to be similar to the last gold bull then we can begin to build up a picture of what gold may look like over the coming years, based on the events leading up to gold's all time high in 1980.

A commonly known figure amongst gold bugs is just over $2000, which is the figure you get when you adjust the 1980 high for inflation and represent it in terms of today's rapidly devaluing US Dollar. If this is to be the high for gold in the current bull then this would suggest that we have at least another $1000-$1500 rise in gold prices to come.

In other words, from the low at $250 to $2000 we are currently at $650/oz, about 37% of the way through this gold bull market. In the last bull, 37% would put gold at $336.55 in late 1979 on its way to $850 in 1980. This would put gold at the beginning of stage three in the bull market, where prices are about to skyrocket. If this is the case then we only have a few months left in which gold will just about triple!

However, I think that this is one of the less likely scenarios, but you do hear many analysts saying when asked how high they think gold can go, “Well inflation adjusted $850 gives you over $2000”. If that is the case and gold is simply going to replicate the last bull, adjusted for inflation, then gold will peak within a few months. On the contrary, I believe that there is much more left in this gold bull than that.

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Another way of looking at how long is left in this gold bull market is by comparing the two market booms simply in terms of time. The last gold bull began in 1972 and finished in 1980 so that lasted for around eight years. This gold bull market began in 2001 as the gold price made a bottom at $250. Coincidently this was the time that Gordon Brown, the Chancellor to the Treasury for Great Britain choose to sell his country's gold reserves....and he wants to be the next Prime Minister! Anyway, if this gold bull will last as long as the last bull, eight years, then that means that gold prices will peak in 2009.

However this estimation fails to take into account the differences in the fundamentals of the gold bull this time around and the differences in the situation and climate of the markets. For example, many more people now have access to trading platforms via the Internet and can buy gold stock and buy gold bullion simply by the click of a button. Information travels around the world in a nanosecond and this will have a dramatic effect on this gold bull, making it generally more volatile and much more dramatic on both the upside and the downside.

It is my firm belief that this gold bull will see gold prices go significantly higher than they did in 1980. It will also be a great deal faster than the last bull market. For this to happen it does not necessarily mean that the gold price will peak in a shorter time, but really means that the gold price will move higher in a similar time frame. Gold prices will go higher, faster for a range of reasons. Firstly for the previously mentioned reasons of the effect of the Internet on the market, which sends prices further in both directions.

Secondly there are the blue chip reasons while gold is looking very bullish, a declining US Dollar and a weak economy. However the economy is actually in a far worse state than it looks as credit is literally out of control as people use their homes, as virtual ATM's to fuel the recent economic and real estate bubble. But I am afraid that all of this is going to come crashing down in the worst economic depression since 1929, in fact there are some analysts predicting that this coming crash will make the great depression “look like a walk in the park”. I sincerely hope that this is not the case, although it would be extremely beneficial for gold prices, nobody wants to see others suffer, especially when it is not entirely their fault. Governments printing money to pay for election promises is not what strong economies are built on, for currencies to be valued at all then they should be linked to something of value and gold is the obvious candidate for this. Then there are the issues with Middle East and oil supplies, which only add fuel to the fire that is powering gold prices to the moon.

I think that we are currently somewhere in the middle of phase two in the gold bull market. Gold prices still have a lot further to go and we maintain our target here at gold-prices.biz of $3000-$5000. There are a variety of ways to capitalise on this explosion in gold prices. Firstly there is the actual physical buying of gold bullion and storing it in a safe place. Secondly there is the option of buying gold through an ETF or via online gold trading platforms. Thirdly one can purchase gold stocks. Gold companies with proven reserves and producing mines are preferable as although the exploration plays can be extremely profitable, this is more of a gamble and few companies actually find the yellow metal.

Disclosure: We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Source: How Much Longer Will the Current Gold Bull Last?