Monday, May 19, 2008

Has Gold's A wave begun?

I've mentioned in the past that I think the fun part of the Fed's monetary inflation is now over. The US is entering the time when the Fed's loose monetary policies are going to start causing pain. Probably a lot of pain.

We've hit the point in the road where the fundamentals are going to take over and move markets where they must go.

Over the last two months we've been privileged to be schooled by countless anonymous posters who are sure that gold and commodities in general are going to collapse. They've repeatedly pointed to the bear market of the 80's and 90's as proof that this is so. Most think commodities are in a bubble. I guess after watching the last three bubbles the Fed has created it's understandable. However just because prices are rising doesn't imply a bubble. For a bubble to form you must have oversupply.

I've occasionally tried to explain that markets work in cycles and that commodities, because of supply and demand fundamentals, are no longer in a long term bear market with as you might guess little success.

Now I think there's a very good chance that Gold's A wave has started. Look at the chart and you will get a picture of the last complete cycle in gold. A waves rarely take gold to new highs. So I expect gold to test the lows again later in the summer. That will be the next great buying opportunity in the PM.

A waves can be explosive but investors probably shouldn't get married to the idea that gold is going straight to $1500.