Gold Approaching Mania Stage

By: David_Vaughn

Gold appears to be holding up well. Over 900 an ounce now but most investors are still asleep. What is a “mania?”

“ An abnormally elevated mood state characterized by such symptoms as inappropriate elation, increased irritability, severe insomnia, grandiose notions, increased speed and/or volume of speech, disconnected and racing thoughts, increased sexual desire…” “…inappropriate social behavior.” “Mania is the Greek word for madness.” MedicineNet.com

Well, maybe a shorter definition of mania is when everyone gets on the bandwagon sending share prices to the stars. And we are getting closer to this event. My take any way.

“Gleam in gold investors' eyes hints at mania” “Surging price tops $900…” “The price of gold is skyrocketing thanks to investors' desire for a haven amid recession fears and global instability, plus a weak dollar and rising prices of other commodities such as oil.” Dispatch.com

With gold continuing to rise to obscene heights it is just a matter of time before the symptoms of gold fever or gold mania kick in. People are watching the price of gold rise and their blood continues to boil higher though their senses seek calm. Gold fever and mania eventually get into an investors blood and blows a bull market into an exploding water heater. In every gold bull market the escalating price of gold is often ignored until an emotional trigger is reached and tripped. We are quickly coming closer to the tripping point.

“Gold futures briefly rose above $900 an ounce -- a record …” “Gold set a trading a record of $897.30 on Thursday.” "It's a reflection of market sentiment: Gold is a hedge against uncertainty, and right now it's the best bet," said Carlos Sanchez, a precious-metals analyst at CPM Group in New York .” Dispatch.com

Here is an interesting riddle.

Gold climbs new peaks and even now is scaling the 900 level yet many of the gold stocks are quietly hibernating. Because gold stocks have overall failed to keep pace with the rising gold price many investors have lost patience and left the arena. And of course this brings us to the million dollar question. Which gold stocks will rise and which gold stocks will just sit there.

“Gold prices continued their stratospheric rise early Monday as the US dollar sank to 75.50 on the index amid reports that Citigroup might now have to write off as much as $24 billion in subprime-related losses. Coming within days of the scary estimates of similar write-downs at Merrill, the news propelled bullion to new highs near $915.00…” Kitco .com

But make no mistake that there will always be a selective number that continue to do well and will reach new record highs. But we are talking about really the chosen ones deemed by the master newsletter writers as the cream of the crop and the ones to hold on to for future price appreciation. What the situation calls for now is an assessment and an analysis of this gold bull market so that we may better understand where the gold stocks are going…eventually. The physical gold price is doing very well. It is only common sense that eventually the gold mining shares will play catch up to the physical gold price.

When will the gold stocks begin moving to catch up with the gold price? I believe in 2008 we will see the equilibrium established again. All the fundamentals are still there. And very strong fundamentals to boot. Is the wait trying your patience? Often there is a disconnect between the shares and the actual price of gold itself. I suppose if it was easy everyone would be rich.

“Gold, Breaking $900…”“New York gold futures hit record highs in a market expecting further Federal Reserve rate cuts that may mean more dollar weakness. It was the metal's first settlement above $900 and was underpinned by inflation fears and global tensions, analysts said.” The Wall Street Journal

Bull markets must always travel a wall of worry as there is a general disbelief and disconnect to what is really happening. The facts are ignored as the psychology seeks to readjust. Plus, there continues to exist this worry that we are at a peak and therefore gold is soon going to crash. Well, it hasn't crashed yet. What we have witnessed so far is normal market volatility. According to Jim Rogers we are in a very lengthy commodities bull market.

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How far does gold have yet to climb? I am reminded by many readers that remind me the 1980 inflation adjusted figure for gold is over 2400 US dollars. So, if we look at the gold price with inflation figured in the price still must more than double to reach parity of days long ago.

“Dave, How much is a 1980 dollar worth today? Gold is nowhere near breaking all records and has a long way to even reach 1980 levels.” W.

Say, what?

“David, It's only a third of what it was in 1980 dollars….to achieve the same worth today as then, gold will have to go to around $2400 an ounce….much ado about nothing.” Thomas L., NYC

You are right Thomas. Much ado about nothing. And yes we are going to see 2.400 an ounce yet.

"None of the other investment options look that great and gold does." “Still, when adjusted for inflation, gold remains well below its all-time high. An ounce of gold at $875 in 1980 would be worth $2,115 to $2,200 today.” ‘The momentum with gold is almost like mania. We keep wondering how high it will go," said Jon Nadler, an analyst with Kitco Bullion Dealers in Montreal . Investors looking to get in on the gold rush can expect volatility for the rest of the year, said Nadler, whose firm forecasts a trading range of $750 to $950 an ounce.” Dispatch.com

And where do the experts see the price of gold down the road and in the foreseeable future?

"For at least the next 50 to 75 years, prices for many natural resources are headed up. If you don't already have a substantial share of your equity portfolio in energy resources, precious metals & base metals, do some switching into them now." - Kenneth Rogoff, Professor of Econ. - Harvard

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By David Vaughn
Gold Letter, Inc.
David4054@charter.net

© Copyright 2008, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

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