Is Gold Overvalued?
Posted on November 14, 2007 in the Investing, Money category
.
Gold has enjoyed a tremendous run-up recently, up over 24% in the last six months alone. As the chart on the right shows most of that gains have occurred in the last 3 months. At this level, is gold undervalued or overvalued?
Well Richard Russell, who publishes the Dow Theory Letters earlier this week was commenting on this quote by W.D. Gann. Mr. Gann is considered by many professionals to have been one of the greatest commodity and stock traders of all time.
“When a stock or a commodity advances into new territory or to prices which it has not reached for months or years, it shows that the force or driving power is working in that direction. It is the same principle as any other force which has been restrained and breaks out. Water may be held back by a dam, but if it breaks through the dam, you would know that it would continue downward until it reaches another dam, or some obstruction or resistance which would stop it.
“Therefore, it is very important to watch old levels of stocks and commodities. The longer the time that elapses between the breaking into new territory, the greater the move you can expect, because the accumulative energy over a long period naturally will produce larger movements than if it only accumulated during a short period of time.”
It is Richard Russell’s opinion that if gold can close above its 1980 peak price of 850 it will have overcome a resistance level that has held it back for 27 years! Thus, a decisive closing about 850 could bring about at least a doubling of the current dollar price for gold!
Now Gold at $1,600 an ounce will probably mean that the world’s economy is in a tailspin. Franklin Sanders of The Moneychanger is convinced that gold’s primary trend is up. He is targeting gold to reach at least $1,250 and ounce. With gold at that level he expects that silver will be $78.13 an ounce. Sanders is also convinced that the stock markets’ primary trend is down and he is targeting the Dow to be under 2,900! The Dow closed today at 13,332. To reach Sanders level, the economy would need to be in a 1930’s style great depression.
I do not expect that the economy or stock market to fall nowhere near as far as the rapid gold bulls do. However, if gold closes above $850 I expect that it’s next stop will be $1,000 an ounce.
.
Comments
Leave a Comment