Gold is now, over 25 years later, and after a brutal long-term bear market, approaching that peak area of $850 per ounce reached previously in 1980. This current powerful leg up in the gold market stimulated just lately by the subprime crisis, the ensuing credit and housing crunch, and what I believe is the underlying inflation in some sectors of the economy means one of three scenarios for gold.
The first scenario is that the current surge in buy gold and oil prices represent an area of peaking action, where after some time of forming a top (with gold possibly between $800-$850), they will correct for some time and the excitement in these investments will abate. I feel that this scenario is less likely to unfold.
In the second scenario for gold, the metal will find short-term temporary resistance at the old 1980's highs and will correct temporarily, perhaps for many months or, while testing that upward resistance level perhaps several times, before breaking through the old top and surging to uncharted territory on the upside, embarking on a new and powerful leg in the gold bullion market.
The third scenario rests on examining the history of the gold price bull market during the entire decade of the seventies, which started after the dollar was no longer redeemable into gold after the monetary crisis of 1971. The gold price rose powerfully into the mid-seventies, only to peak out and go lower, before taking off again into the second inflationary wave of that decade and multiplying many times in price to $850. This scenario, if it happened today, would mean that the gold price, would reach a temporary peak in the coming year or so, then decline into a lull that could last over a year, before beginning another powerful ascent that would dwarf anything we have seen to date.
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