Dan Tohatan - I've Never Been More Bullish

Thursday, June 11, 2009

Since 2007 when I first started tracking the price of gold, I have never been more bullish than I am right now.

Basically, I see no downside risk at all. Back in the fall of 2008, there was VERY STRONG buying pressure when gold fell below $900. I mean, so strong that there were gold shortages everywhere. Even the Indians were buying, and buying more than usual! So I can't possibly imagine gold going below $900 ever again.

According to my own research, the right price of gold is somewhere around 2000 current US dollars. That's where the upside potential equals the downside potential.

Basically, to calculate where the price of gold should top out, take the $850 price it was in January 1980, multiply by the change in money supply, and then multiply by the change in demand and divide by the change in supply. This calculation gives me $4700, using the supply & demand data from 1979.

The supply & demand data is available at Kitco's website, and M3 is available at nowandfutures.com.

Now I already identified $900 as a key support level. So now taking the geometric mean of $900 and $4700 I get just over $2000. That's the price necessary for the downside risk to equal the upside risk. Below that, gold is undervalued. Above that, gold is overvalued.

I'm pretty sure I can even put a date to when gold will go above $1000. Gold will be above $1000 by April of next year (2010). My guess is it will happen well before that date. Probably this summer.

Thursday, June 11, 2009 1:16:53 AM (Eastern Standard Time, UTC-05:00)