In Friday's post, "Gold is Holding On", I asked you to compare previous consolidation periods to the current consolidation in GOLD that started in Dec. The key to understanding the future lies in studying the past. In other words, "history repeats itself" which can be seen by identifying chart patterns. Chart patterns are reliable and repeatable because they are the pictures painted by human psychology and emotions.
Let's take a look at the current picture, and then step back in time:
By visually inspecting the charts, I would say the current 2010 period has closer resemblance to 2008 that 2009. Basically, GOLD is currently consolidating after making another all time new high, as it did in 2008. If it wasn't for the stock market crash, GOLD looked like it was on its way to making a another all time new high in 2008. Instead, GOLD was forced to retest it's previous high before resuming it's uptrend. Thus, unless the stock market crashes again, expect GOLD to continue making new highs.
Another stock market crash is inevitable. However, I believe hyper-inflation will precede another stock market crash. The United States (and Europe) pretty much has no choice. The country will be running under a massive deficit for an extended period. The easiest way to "reduce" the debt is through hyper-inflation. Once the debts and deficits are under control, expect the US to take a page out of Paul Volker's playbook. Interest rates will keep increasing until finally we come full circle ... DOW:GOLD ratio back to 0.5 - 1. When that occurs, sell all your GOLD assets and move right back into stocks.