How high gold can go?

Lately I have warned that gold/silver appears to be a bit in a parabolic move and is due for a short-term sizable correction. We may be seeing it now. One thing I learnt over years is not to bet against the smart money. As I said, the smart money, i.e. the commercial traders in this case, are the ones knowing inside and out of the rhythms of the precious metal business. They usually long when they are at the bottom and short when at the top. For a few months now, the smart money as seen in the COT report has heavily shorted gold and silver, reaching a magnitude not seen for years. Not a good time to start buying at this point without proper downside protection. I hope you didn’t.

 

Having said that, I’m a super bull for the precious metals for long-term. I have never lost my faith in it even after a 50% plunge in the past few years. I know it is just a matter of time the glory time will come back. I think it did since the start of this year and will continue for years to come. You may see my reasoning here. So the question is how high gold can go? No one knows for sure of course but we may look at the history to try to get a hint. Below is the chart I recently saw with a great interest. It plots the current gold percentage price action in red since 2000 over the historic time in 1970s, the last gigantic bull run for gold. Can you tell much a difference between the two? Almost identical in the relative sense. We often say history may not repeat itself but often rhymes. If history is any indicator and by applying the percentage gain from the last bull run for the same time period, it implies gold can surge to as high as $7000 in the next 3-4 years. You can see more details of the analysis here.

 

1970s: US$35 in 1971 to US$180 in 1974 (414% gain)

Now: US$280 in 2000 to US$1,888 in August of 2011 (574% gain)

1970s: Correction 1974-76 US$197 to US$110 (44% loss)

Now: Correction 2011-15 US$1,888 to US$1,056 (44% loss)