Wednesday, June 3, 2009

$10,000 gold?

W. D. Gann noted many years ago that the larger and longer a commodity consolidates the bigger the rally usually is once the breakout occurs.

In last nights update I suggested the possibility that gold could ultimately go to $10,000 an oz before this bull is done.

Sounds totally ridiculous doesn't it? Hey it doesn't sound even vaguely possible to me either at this point but I can assure you it is possible.

First off let's consider that the US has run up 50+ trillion dollars worth of debt. Seriously, we are never going to be able to pay that. So our choices are default or inflate. Which do you think the government is going to choose?

The Fed is already monetizing debt even though Bernanke will sit in front of congress and lie through his teeth and say we aren't. We are!

50 trillion and counting isn't a precursor to mild or even moderate inflation. That kind of debt leads to hyperinflation.

Next take a look at that chart of gold. The sheer size of that 27 year consolidation is staggering. Gold has already broken out of the consolidation. It even tested the breakout level last month as gold put in the B wave decline.

Once gold breaks back above that psychological $1000 level there's nothing but blue sky as far as the eye can see.

Still don't believe me? Look what happened to oil once the $40 ceiling was broken.

It's a bit hard to see on the final chart but the stock market went through a very similar consolidation from 66-82. When it finally broke above that $1000 level it moved all the way to $11,700 before the bull finally came to an end.

In case you didn't notice that is an even bigger move than what I'm suggesting could be in store for gold.

How many people do you think could have possibly conceived of the stock market rising all the way to $11,000 dollars in 1982? I dare say virtually no one.

Here is one truth that you can take to the bank. A powerful secular bull market will invariably go higher than almost anyone can imagine. And by the same token a secular bear market will fall much farther than anyone can foresee.