The Outlook For Gold

By Louis Paquette

Publisher, Emerging Growth Stocks.ca

The outlook for gold

This week at the World Resource Investment Conference in Vancouver, Canada, I gave a workshop on the outlook for gold prices in the short and longer term.

Short term

Even as Gold is hitting all time (nominal) record highs - I told my audience that I was neutral on the outlook for gold over the next few months as he charts are starting to look overbought and showing signs of negative divergences, even as we are in the midst of a seasonally weak time for gold due to an annual slowdown in buying for the Indian wedding season until September when the physical buyers reappear.

This could be wrong though due to the unique situation happening in Europe (the emerging debt crisis) and because seasonality is not as pronounced today as it was years ago due to the fact that much more of the buying of gold is coming from investors as opposed to jewelery bullion buyers as prices have risen (the Indians are price sensitive).

Longer Term

In the long term though, I pointed out no less that 4 historical patters suggesting the gold bull market may have a long ways to run - that we may only be roughly half way done.

Inflation adjusted - gold would need to move to roughly $2,200 to reach the highs the last great bull market in 1980

Gold vs. S&P 500 - in previous gold bull markets the price has move to anywhere from 4 to just under 6 times the S&P 500. The price is currently just over 1.25 times now

Previous Bubbles - the Japans Nikkei in 1989, the NASDAQ bubble of 2000 and the gold bubble of 1980 - ran up anywhere from 1,700% to 2,600% whereas the the current gold bull market has only sent the price up 4 times since it began.

Time span - in the past gold, along with commodities have tended to experience bull and bear markets lasting roughly 20 years in length. This one is roughly 10 years long - implying it could have another ten years to go.

Of course, there's no concrete reason stating that the current bull market in gold has to match the ratios and magnitudes of previous ones. I am merely stating that if it were to be similar to previous bull runs, that this one is only around half way done in terms of time, and has much further to move in terms of magnitude. The reason being - that often times - the really big moves in a bull market tend to take place in the second half and actually closer to the end of the entire bull market.

Given some of the fundamentals surrounding gold; the dwindling production supply and the rapidly deteriorating currency situation around the globe - I certainly wouldn't bet against it.