In a past century, a particular Mania came in the colors of the Tulip: red and yellow, primarily.  One of them came in the color of the South Seas.  In 1929, one arrived in the color of paper, in the form of Stock Certificates.  In 2000 and 2007, the key colors were those of Stock Certificates, again.  And now, in late 2009, three of them have appeared in the colors of Gold, of Silver, and of Green – that of the Dollar Bill.

Actually, the Dollar Bill Mania is a Mirror-Mania, in that investors have relentlessly driven its price down rather than up.  The Mirror-Mania is the inverse image of the Gold and Silver Manias, companions that they are, with Gold taking the lead position.  Imagine Gold as the Lone Ranger, and Silver as Tonto.  Interestingly, the Lone Ranger’s horse was named “Silver.”

The signs of a Gold Mania are all around us.  It has been bid up to prices never before seen, in a frenzy of buying by “investors” large and small.  We know that we are dealing with a Mania when the Government of India exchanges U.S. Dollars for Gold at precisely the wrong time; when Harrods offers physical Gold in various shapes and sizes “off the shelf;” when – irrationally and correlatively – the value of the Dollar Index has been driven to new Lows; when buying happens in anticipation of an inflation which is not here and is not coming for a while, because we have to deal with deflation first; when chatter is rampant to the effect that “Gold is the new currency” (i.e., in substitution for the Dollar); and when an agency of the United Nations talks about the necessity of establishing an alternate reserve currency to be based on a “basket” of currencies to be “managed” by the UN itself.

All Manias come to an end; and when they do, “the last state of that man is worse than the first.”

The Gold Mania is just about ready to break.  When it does, we can look forward to the price of Gold at well below $700 per ounce.

On the chart:

ADX is high and continues to rise;

Stoch K is high;

Bollinger Percent B is high and is beginning to fall off;

Chandelle 1 and Chandelle 2 are in a “Pinch.”

In combination, these factors present an excellent setup for a price decline.

William Kurtz

November 10, 2009

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