Mania In Gold?

With Gold prices reaching all time highs recently, is there a mania in Gold going on? What do you you think?

Prices broke through $1,300.00 this week and it appears there's no top in sight, or is there?

I was doing some research on Gold prices this morning and came across a chart I found interesting, hence the new article you are reading.

The chart below goes back 36 years to 1974, and is courtesy of goldprice.org

A mania can be seen by the performance on a chart by an abnormal move which simply cannot be sustained. Using a single stock for example, if the price of stock xyz went from $1.00 to $8.00 relatively quickly, there's a good chance it would fall from grace and return to previous levels. If the company was doing something right, then prices will continue to climb, at a more normal sustainable rate.

I like to think of a mania on a chart like throwing Gold coins up in the air in a crowd. Everyone would climb all over each other to grab one, and then reality would set in when there are none left. Those who did manage to grab one, would now try and sell to those who didn't. The more people who started selling, the lower prices would go.

Mania in Gold

You'll notice on the chart above that even without knowing any history, there appear to have been a mania in Gold in 1979-1980. Prices went almost vertical, before declining and giving back approx. 80% or more of it's gains.

Compare that to current price movement on the chart. Since 2004, prices have pretty much made 3 vertical runs, of which prices are in the 3rd now. One vertical ascent could be considered a mania, but 3?

I don't know about you, but Gold appears to be in a mania as it continues to move higher and higher lately. When Gold finally does move lower for a pullback, there's room for a significant decline from current levels, which could happen very quickly as traders and investors flee.

Who know's for sure though. To me, the chart is telling a story. To others, inflation and the old "flight to safety" play is all they're considering. Be careful.




Return From "Mania in Gold?" To "Gold Investing"


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