Saturday, 3 May 2008

Fibonacci points to $600 gold re:1974? 2008-05-03

Saturday 3rd May 2008 7:35 pm: Fibonacci points to $600 gold re:1974?

James Turk of has mentioned on some internet radio shows that the period at the beginning of 2008 reminded him of 1974 with the high inflation and the oil crisis, accompanied by a stock market crash.

What also happened in 1974? Well, at some point real interest rates rose and there was a stock market crash. Inflation peaked for a while and the gold price went down from a high of around $198 all the way down to $103, which is a 48% correction.

So what if we repeated 1974 now? Would gold decline 48% from its 1020 high to $530 (i.e. 0.52x1020)?

I have been thinking about this ever since James Turk made mention of parallels with 1974, even though he also forecast a gold peak potential of $1500 for 2008.

Ronald Watson has an article on called The Death Of Gold Revisited where he has a couple of excellent charts, showing clearly the context and then the detail of the 1974-1976 cyclical bear market in gold, in the midst of the 1970-1980 bull market. He shows the British Times newspaper article about gold soaring andwonders if it marks an interim top (Cramer also pushed gold at this time) and the start of a possible large drop in the price similar to that in the mid-1970s.

His 58% correction is the 1974-1976 retracement fraction of the gold bull 1971-1974 upmove; the price rose from $35 to $198 and then fell back to $103. So (198-103) = 58% of (198-35) .

If one were to use the breakout from the previous high of $43.50 on his chart (or maybe $42.22, which was quoted elsewhere as the gold price after a dollar devaluation at that time), then the upmove was 198-43.50 and the downmove was 198-103. The percentage of the downmove compared to the upmove is then ((198-103)/(198-43.50))*100= 61.49% Wow, that's 61.5%, so close to a Fibonacci Golden Ratio classic retracement of 61.8%!

Let's apply this to the current gold market 1999-2008:

We need a breakout point for gold from the long term chart. See the 10-year Kitco gold chart here. Now there was a pop up in gold in late 1999 to about $325, before the Bank of England bombed gold with its annouced gold sales staring that year. Kitco's Historical London Fix page for 1999 (what an excellent website") states that the highest London Fix price that year was on October 05, 1999 at $326.25. The next time that was bettered was May 29, 2002 with the PM LondonFix at $327.05. That is the breakout and one great candidate for the start of this bull market. See Kitco's Historical London Fix page for 2002.

Their Gold fixes for 2008 page gives the 2008 peak as the 2008-03-17 AM Fix at $1023.50. Now for the arithmetic. What would a Fibonacci 61.8 retracement give us? It would give a price target of 1023.50-(1023.50-326.25)*0.618=$ 592.60. WACKO JACKO! That's my $600 target from the Head & Shoulders potential pattern in my previous posting called Ominous double head and shoulders in gold to $600?...(!)

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