Has anyone contemplated the concept that the recent peak was the equivalent of the mid 1970s peak of 800 after which there was an 18 month correction, before the final 4.5 year explosion?
If there is massive deleveraging and deflation in 2012 and 2013 which looks a real possibility, then gold will really have to prove itself.
For those of a view that history often repeats itself, gold in late 1974 was at 800 (inflation adj) and dropped to around 380. A similar repeat pattern now would result in gold dropping from 1925 to 950.
It took 2 years for the rapid rise from 350 to 800, then 2 years to go back to 380.
This current cycle from late 2009 (at late 900s) to Autumn 2011 (also 2 years), could forseeably be mirrored by the same drop over the same duration, so a mid cycle bottom in Autumn 2013.
Such a correction would flush out almost all investors. It would also mirror the classic bear trap stage of the Awareness Phase of the anatomy of a bubble. (see the graphic yourself as can't pin it).
How many of you are placed to handle a fall for 18-24 months down to $950, as that is one pattern that is reasonably feasible.
This kind of thinking doesn't threaten the long term bull position. It kind of makes sense if one views that this depression will take another 4-5 years post 2013. By 2018 we could see gold at over $4300 (i.e. using inflation adjusted figures the POG went from 800 to 1800 = 2.25x).
If there is one thing I have learnt from the last 3-4 years of crisis, it is that the change occurs very much more slowly than previous recessions. The gold bugs are very impatient, and the powers that be, far more resilient to radical change. The hyper-inflation arising from the QEs should only feed in, once we have had the second and more devastating dip of this depression.
So, what do you good folk reckon of the mid 70s mid cycle argument?
(I do recognise that this era is worse than the 70s, but place that to one side.)