Anticipating Bath Time for Bubbly Gold ~ The Risk Averse Alert

Saturday, August 27, 2011

Anticipating Bath Time for Bubbly Gold

According to today's Wall Street Journal Heard on the Street, "Bubbly Gold Might Take a Bath."

Might? Why hedge? The barbaric relic most definitely will take a bath. The question is when...


(NOTE: A link to where the above chart originated now appears under "My Research Assistants" in the left hand column.)

Spot gold's present parabolic advance bears striking similarity to that leading to spot gold's peak in 1980. Equally noteworthy is similarity in consolidation preceding each parabolic surge in spot gold (noted via green dots above). As you can see, this occurred in the vicinity of prior, record highs immediately following a new record, spot gold price high being set.

Now the question is how much further might spot gold rise before the gold bubble bursts? Although the generous answer might not soothe most among diehard gold bulls, for the rest of us forewarned is better forearmed...


Technically speaking, there's no indication yet at weekly intervals suggesting spot gold might be on the verge of cratering. Relative strength, momentum and volume, all increasing; all suggesting spot gold has higher to go.

Yet the same also was true late in the game of another famous bubble of pump and dump fame whose advocates similarly were prone to boasting that, this time is different...


So, in answering how much further spot gold might rise before the bubble bursts, another 20-30% appears entirely within the realm of possibility. Relative strength divergences (see top panel) and momentum extremes (bottom panel), such as developed when NASDAQ reached its Y2k peak, likely will appear just prior to a great unwind in the spot gold market.

Bear in mind, just like 1980, gold is indicating financial disorder, and history suggests the confluence of causes for this are not likely to persist. In the present instance an insolvent banking system appears only the nearer to being widely recognized impervious to any further liquidity provisions.

As you know, I believe the Fed, like Zed, is dead. So, forget about quantitative easing to infinity and beyond offering fundamental basis for spot gold remaining on its current, parabolic trajectory. Rather, in an astronomically widening crush for capital fast approaching, gold's luster will be lost.

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