Tony Lepage

The window is here, but for how long and what price range will it present us? Let’s make things fun. I’m going to stick my neck out here, and make some real predictions.

Motivation: One of today’s headlines reads: Gold sinks more than $36 to end at a one-month low.

A word of caution: while specific targets are shown in the charts below, one should only watch for long term trends and not exact numbers. If gold goes to $1500 an ounce, does it really matter if you bought at $600 or $700 an ounce?

Examining this first chart you can appreciate how most of those involved in the gold markets up to May 2002 became disheartened by the turn in price action. For a short while, it appeared that the bull market had become a bear market. Six months later a new high is hit and gold begins the next up swing.

Continuing up that swing gold reaches a new high only to have it taken away. This time gold hits a new high of around $386 and dives south of 330; a 15% drop. Sentiment is worse—just when things were starting to look good the “gold bull” bucks some more riders.

Notice the classic flag formation. While price action is between the flag boundaries (no new lows or highs), a break north or south of it can indicate the direction of a major pending move.

This brings us to the point when mainstream media begins to talk about gold. However, gold is still moving in relation to the US dollar: when the USD$ goes down, gold goes up. This relation is soon left behind during November of 2005 when gold finally breaks free of this tie and makes some serious moves upward.

In fact, these moves are so seriously quick and fast a lot more people are paying attention. This is why the current correction on gold has to be fierce. It has to last a (relatively) long time and it has to force the average investor to say “Gold is over.”

What would make anyone say such awful things? Perhaps the commodities bull market will begin to end and prices for other metals will stabilize. A lot of investors can’t see the difference between gold and other metals. Gold is a currency and this will cause the gold price to continue to rise, regardless of what other metals do. Maybe the USD will start to stablize, form a base and slowly move higher. Remember, November 2005 marked the end of that relation. The USD is doomed, it is the end goal of the Federal Reserve: devalue the USD and inflate the money supply. The problem lies in creating so much money and not causing stagflation (0% economic growth relative to true, hidden inflation). Nearly impossible.

For the short term, this bull has to buck some riders. This may be the last chance for you to join in on the action or maybe this cycle of two-steps-forward-one-step-back isn’t over and will continue a few more times. For now, here are my predictions till year end:

Also, the longer gold is slammed and prevented from making new highs, the better it will be for anyone involved in the next up-leg. If gold doesn’t hit a new high until the New Year, expect the upswing to be fierce… think $900-$1000.