The GATA Gold Rally

For the next few weeks or months, analysts will likely refer to the latest rise in the gold price, which started on Monday, as the GATA RALLY. As some of you know, this Thursday, the Wall Street Journal will carry a full-page advertisement paid for by GATA. The headline of the article will read: “Anybody Seen Our Gold?”

The inference is that some of the gold that is supposed to be stored at Fort Knox may not be there, or may belong to foreign governments. The last time this gold was officially audited was 1953.

GATA has maintained for years, as originally reported by Frank Veneroso, and recently documented by John Embry, that the gold price has been manipulated by Central Banks and privileged bullion banks, along with some gold miners. (Barrick (ABX) comes to mind). It is hoped that this advertising campaign by GATA will finally focus the light of truth on this dark issue.

The question now before us is: How high can the gold price fly? The vast majority of investors are still being influenced by the Wall St. guru’s who have for the most part ignored the fact that gold has outperformed main stream investments since 2001. Therefore, there still is a lot of money that has not yet come into play.

Featured is the seven year history of the gold price compared to the S&P 500. Except for periods of consolidation, the trend has favored gold since 2001, and what we may be looking at here is a ‘moon shot.’ This is probably one of the most important charts you can have in your arsenal. As long as this trend is up, gold will outperform mainstream stocks.

In this next chart we will examine the comparison between the stocks of the Dow, and the stocks that comprise the Amex Gold BUGS Index (HUI).

click to enlarge

During the past seven years, since gold bottomed in 2001, gold stocks have consistently outperformed the DOW. “A trend in motion remains in motion until it is stopped.” Until we see evidence that the trend is reversing, it behooves us to ‘trade the trend.’

Next let’s examine the price of gold itself:

click to enlarge

The above chart features the seven year bar chart for gold bullion. The breakout from the recent pennant (thin blue lines), sets up a target of $1,000.00 for this GATA rally. Emotional trading and frantic short-covering by some of the manipulators could send gold even higher, but $1,000.00 gold is the target.

The charts are courtesy of www.stockcharts.com.

DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.

Comments

[User 142738:]

Actually, Fort Knox has an audit coming up.

2008 Jan 29 07:09 PM

[E.D. Hart:]

A little (never?) mentioned fact of the current commodity cycle is that gold, when adjusted for inflation (using credible inflation numbers, not the US Government's) you get to approximately $4000 per ounce. This figure is approximate, but assumes $850 high in 1980 (spot) and 6% inflation, and rounding down because of poor precision. Why 6% inflation? Everyone knows that inflation has been under control and about 2-3% the last two decades...why 6%? Because more careful calculations of inflation, not relying on bogus governmental fudge factors such as hedonics calculations and the like, yield a more realistic calculation of inflation of 6-8% inflation annually since 1980. I used 6% as a conservative number.

Historically, you can expect gold to match the inflation number over long enough time periods. I expect the catch up factor that gold needs to appreciate to $4000/ oz to reach roughly its historical relationship with inflation. Gold will be in bubble territory when it trades significantly above $4000/oz, but I would be a seller of half my position there.

The media consistently misrepresents the gold story as one of a flight to a safe asset class during times of global turmoil, and this is half right. Its common to read that gold will reach its old inflation adjusted high when it surpasses approx. $2000/oz, which is all wrong.

There is no gold bubble, there is a brewing global inflation trend that will last another 8-12 years and bring all commodities much higher. With vicious corrections along the way.

2008 Jan 30 08:00 PM