Monday, November 8, 2010

Final Blastoff

Gold.  It is the most logical choice among speculators to target as the best risk asset.  It is the next bubble.  The greatest benefit of gold is that it cannot be denied by fundamentals.

If oil prices get too high, OPEC will be tempted to bring out more supply thus dampening the price.  There is also demand destruction there.  Same goes for other commodities.  But gold trades on pure speculative fervor.  It has very little intrinsic or industrial value, a small portion is used for jewelry, which is based on perception.  There are many other elements rarer than gold which aren't used for jewelry.  The fact that gold has been used and sought after as money doesn't mean anything in this fiat world where money is not backed by gold.

The story sounds good.  Banana Ben is hell bent on continuing to print money to finance the Treasury budget deficit and to goose the economy.  Since printing money is a very inefficient way of lowering the unemployment rate, the Fed will have plenty of fodder to print more money as the unemployment rate stays high despite lots of QE2.  So they will print more, because if 600 billion is not enough, maybe 6 trillion will be.  If 6 trillion isn't enough, maybe its 60 trillion.  As long as the banks and the financial markets want it, they will get it.  We know Bernanke is the sugar daddy and he will deliver.  All this money printing of course encourages the search for other currencies, and of course, gold, which will be considered the best currency as other nations competitively devalue. 

The chart is beautiful.  It is a perfect example of a chart that is about to go parabolic.  A very long uptrend built over several years with momentum rising every year.  It reminds me of the Nasdaq in late 1999.  Crude oil in early 2008.

From looking at past bubbles, from the liftoff point where the market was basing usually was a move of 50%-60% to the top.  The Nasdaq took off on a relentless uptrend from 3000, going from 3000 to 5000 in 3 months.  Gold has been basing between 1100 and 1250 for the past year before starting its liftoff on the QE2 announcement taking it up to 1397.  Based on past analogs, we can expect a 50% move up at the minimum from that base, so a range of 1650 to 1875, on the conservative side.  If we get a 60% move, it would be a range of 1760 to 2000. 

The best way to take advantage of this is to buy gold, silver, platinum, or palladium.

 Nasdaq bubble

Crude Oil bubble

Gold bubble

No comments: