Let’s start by reviewing the period between April 2006 to January 2010.  This is when several levels of long-term importance were established.  Given the high at around $9 and the low at around $1.50, the fibonacci levels now influencing the share price are established.  Additionally, an up-trend was established, as indicated by the trend line from the dips in October 2008 and September 2009; this up-trend has remained in tact and serves as long-term support.

Here is a long-term chart for October 2006 to August 2011 showing the long-term up-trend with trend support at $5 and various reactions around key fibinacci support levels at 61.2% and 78.6%.

Here is the long-term chart for September 2008 to August 2011 showing the long-term up-trend with long-term trend support at $5.

Medium-term chart for October 2010 to August 2011, indicating a short-term range trade between long-term fibonacci levels 60.8% and 78.6% descending wedge with trend support at $5.

Short-term chart for March 2011 to August 2011, indicating a descending wedge formation nearing completion.

UPDATE: 9/2/2011

It looks like we have a short-term down-trend-line breakout on the 1-year chart in TRX.

TRX 9/2/2011 – 1 Year Chart – Tanzanian Royalty Exploration Corporation

Gold benefits from: out of control sovereign debt, nanny states, media mind control, war, over-the-counter derivatives, unfunded liabilities, trillion dollar deficits, accounting fraud, artificially low interest rates, quantitative easing, loss of confidence in governments and paper assets. Gold benefits from these things because it allows imbalances to get out of control in a major way.

In just 5 years the gold market has bid up the price by $1000. It is likely that, in the next 10 years, the gold price will rise to at least $15,000.

Oh, and did I mention that nothing meaningful or effective has been done to address those issues listed above, which help to create a bull market for gold. That’s why these kinds of great movements of civilizations can last for a decade or more; because of the unwillingness of societies to solve their problems until its too late.

Gold is Not in a Bubble

Gold is mistakenly thought of as being in a “bubble”; however, gold has a history of being a currency of last resort when confidence-based systems fail. So when you have vast sums of “wealth” worldwide tied up in confidence systems, such as the US-Dollar and the US reputation is subsequently crushed, what you see in gold is actually a deflation of a world-wide bubble of confidence in paper assets.

If you consider the trillions and trillions of dollars, still tied up in questionable confidence-based paper assets, why should $1600 be the ceiling for gold? The US and other major debtor nations never stop raising their debt ceilings and never address the underlying problems, so why would gold stop reflecting these problems anytime soon?

What I believe you will see, over the long-run, is that the next 10 years will look like the last 10 years; but sharper to the up-side and more violent in its volatility as things become increasingly more unstable.

Gold went from around $250 – $1600 during this 10 year period (a 560% increase); it will likely go from $1650 – $15000 during the next 10 year period (an 800% increase).

Why Gold May Eventually Reach $15,000

Jim Sinclair is well known for his prediction of the rise in gold to nearly $900 in the 1980’s. The formula Mr. Sinclair used was roughly: the price gold would have to reach, in order to make the gold held by the United States equal to the amount owed to foreign creditors, on the international balance sheet of the US.

In the 1980’s that “balanced” value was $900. Today the “balanced” value would be $15,000+.

Jim Sinclair | Jim Sinclair’s Mine Set

Assumption:

Because gold is held by many central banks, once as a reserve currency but now as an inventory currency, it functions as a swing asset to balance the International Balance sheet of the US.

Central banks are sellers of dollars but still hold, by default, large dollar inventories.

China has hedged its dollar position 50% through commitments to long term dollar commercial agreements, pay in, mineral, and energy deals internationally. That is an act of pure genius.

We can assume other central banks still hold 90% of their reported dollar positions, on average unhedged by commercial obligation positions.

In crisis times, the US dollar price of gold ALWAYS seeks to balance the International Balance Sheet of the USA.

Therefore:

Take 90% of international US dollar debt less China and then add 50% of the US debt owned by China. Then divide that number by the ounces supposed to be owned by the US Treasury. The result is where gold wants to go.

In 1974 this gave me $900 gold. Now you do your homework, and submit your analysis to me. Do this, and I will give you Angels going to that price by a little known technique of Jesse Livermore that only works on gold after it has broken to a new high above all resistance.

Little by little I am passing on all that I have learned from Jesse through Bert to those that read every day in thanks for your support of me and mine.

Jim

When you evaluate recent data, with the above formula, you get the following:

source: Jim Sinclair’s Mine Set

Using the methodology you specified in your article today, I get a target price for gold of: $15,600.

Most current TIC report: http://www.ustreas.gov/tic/mfh.txt

Total Foreign Holdings of Treasury Securities: $4,479.2 Billion
-Less : China – Mainland (1,144.9)
-Plus: 50% of China – Mainland 572.5

Adjusted Foreign Holdings of Treasury Securities $3,906.8 Billion

Number of Fine Troy Ounces held in Custody by the US Mint for the US Treasury: http://www.usmint.gov/downloads/about/annual_report/2010AnnualReport.pdf

Note to Financial Statements 6, “Custodial Gold and Silver Bullion Reserves”, page 59
Statutory value @ $42.2222 per FTO $10,574,053,000
Number of FTO 250,438,229

Valuation of Gold required to equal Adjusted Foreign Holdings of Treasury Securities
Adj Fgn Holdings $3,906,800,000,000
Number of FTO Gold at US Mint 250,438,229

Gold price Valuation $15,600

The Option to Protect Yourself is Still Available

So all of those people who complain about having missed their chance to protect themselves from what is to come are full of shit. Even if you can only spare a hundred or so dollars at a time to get a 1/10 ounce gold coin, or buy a few shares of a gold mine each month, you can benefit greatly by protecting yourself from the coming rout of inflation.

One interesting fact, is historically quality shares in gold mines have held a 3x leverage to the price of gold. This means that if gold goes to $15,000, the likely return on the share price would be at least 2400%. Junior gold miners can have an even higher level of leverage, given that their share prices tend to stay suppressed and then eventually explode when the fundamentals take over as gold rises.

Gold will be there for you to use when the value of everything else is called into question. It does not require anyone to perform on their obligations, as all paper assets do. Given that we are living in a vast sea of empty promises, is it any wonder that people are choosing gold and other precious metals to protect themselves?

As I write to you this evening, the very real prospect of hyper-inflation, a catastrophic currency event, is staring down the vast world of US dollar-denominated paper promissory notes. Gold is behaving like a bright comet in the sky, grabbing the attention of the keen observer and giving them an edge over others who are too distracted to look up.

The confidence model is rapidly crumbling, after many years of neglect; the US dollar bubble is finally bursting in an awesome way. If there were genuine integrity, then surely such a model would do; but the lack of sufficient moral fortitude in the hearts of men, makes it virtually impossible to have a confidence based economy for very long; because the confidence is merely an illusion and the model can only be sustained as long as the illusion persists.

On the daily chart, we see panic buying (and short covering) driving the price of gold to well above $1200 dollars. Major central banks, such as the Indian central bank, have become large-scale buyers of Gold.

It looks like my original medium-term target of $1379 is going to be upon us relatively soon. Our next target may soon be followed by a touch of the inflation-adjusted high of $1650, followed by a period of consolidation.

Gold Daily Chart: December 21, 2008 - December 2, 2009

The picture becomes clearer if we look at the inflation-adjusted monthly chart, showing the gold price action clear back to 1970. Considering official inflation statistics, we can see that gold has yet to move past its previous high, despite a vast expansion in monetary aggregates, which has occurred during the past several decades.

Gold Monthly: 1970 - 2009: $1650 Price Objective

Nobody can say for sure what will happen with the short-term fluctuations. But longer-term it is quite clear that the price of gold will move into the $5,000 range, as the reality of the need for hard assets sets in. It doesn’t take but a few billion dollars worth of gold purchases to create a significant increase in the gold price. Given all of the trillions of dollars already in circulation and the trillions planned for bailouts; the target of $5,000 will likely turn out to be a conservative target, once the dust has all cleared.

A golden comet now lights up the sky; an omen of what is in store for our future.  Gold is up just over 50% during the last 1-year period.  Given the buying strength we are seeing lately, especially from central banks, we will likely see gold in the $1600 range quite soon.

Of course, there will be road-bumps along the way; but the general course will take us to $1650 and then into the $3000-5000 range.  Where Gold goes beyond there depends on the monitary policies of the United States and what kind of thinking takes hold as all of this inflation begins to hit hard where it hurts.

The beautiful thing about gold, is the fact that it gives us all a clear omen, which allows the wise and observant among us, a chance to prepare for difficult times ahead.  This golden comet will become ever more brilliant with the passage of time.  Perhaps most of us will soon realize what is occurring and what they must do to deal with the situation.  This situation isn’t going to go away on it’s own and nobody is going to solve the problems  it creates for us in our stead.

Gold Swiss Stair Formation Following Wedge Breakout

The price of gold has cleared the former all-time high, reaching into the $1040 (USD) range for the first time in the history of the yellow metal.  The chart below illustrates how gold formed and broke through a bullish inverted head & shoulders formation, broke through the top of a consolidation wedge, and broke through a wedge in the MACD indicator.

With an RSI reading of 70, gold is one hot commodity.  This should start ringing some alarm bells at major money centers around the world.  It is becoming ever-more apparent, that we are experiencing a serious rout of inflation which could very well turn into a devastating wave of hyper-inflation in due time.

Gold Breakout Chart: October 7, 2009

As of September 25, gold has broken through two long-term formations and sits at the neckline of an inverse head & shoulders formation.

Given that gold closed the week at the neckline of such a long-term Head & Shoulders formation, after having shown such resilience over the past few weeks, it is time we prepare ourselves for a significant move, further into unknown territory. The chart above indicates that gold is acting like a coiled spring, ready for the slightest trigger, to send it into launch mode; bringing the price into the $1200-1300 USD range.

When I look at this chart, I am reminded of the 2002-2003 period, when gold was hovering around the $375 range in a large wedge formation. At the time everyone was thinking, “this must be it for gold, it’s already had such a run from $250, the bull run surely must be over by now.”

I remember seeing the wedges, similar to the current chart, though less volatile than the current price fluctuations. I remember seeing a good-sized wedge in the MACD which had broken to the upside. In fact, it was at this time that Jim Sinclair, the CEO of Tanzanian Royalty Exploration and the author of Jim Sinclair’s Mine Set had a contest for gold community members to draw the relevant trend lines on an Investors Business Daily gold chart that he provided. The prize for this contest was a one ounce gold coin.

Well, I took Jim up on his offer and drew formations similar to those on the attached chart. Including a MACD breakout precisely like the one on the current chart. I made the chart simple yet elegant and intuitive and fortunately for me; out of all of the hundreds of charts sent in to his fax, he chose mine as the winner. What a great feeling that was and what an appreciation I gained for the power that each of us has to understand what is going on in the economic world with elegant simplicity not endless complexity.

It was even more rewarding to see gold advance to $450 by late 2004 and then $700 by 2006. What you have to realize, when you are studying these charts, is the fact that the underlying forces which propel gold skyward have not changed. The governments and central banks of the world continue to employ their disastrously flawed Keynesian economic models which create welfare, warfare and ultimately massive inflation.

Politicians love having all of the “free” money, hot off the printing press, to buy votes, line the pockets of their associates and bail out their friends. That is why these leftist notions of a nanny state taking care of us from cradle to grave, often embraced by Republicans and Democrats alike, is not going to solve the problems it was intended to solve.

This is because everything has a cost, yes even the nanny state, corporate welfare and the like. As the price of the yellow metal rises the buying power of the savings of billions of individuals decreases; so they are in effect robbed in broad daylight by the Keynesian inflationary policies. Is it any wonder that the standard of living continues to decline all over the western world.

“We can’t solve problems by using the same kind of thinking we used when we created them.” –Einstein

One of these days, it may dawn upon people, en mass; that in general the government doesn’t solve problems, it only creates problems. So the only way to truly solve problems is by strictly limiting the role of government to that of a referee and letting the free market bring about the solutions we need.

Had the free market been allowed to act upon zombie banks years ago, when the problems first arose; these banks would have never become “too big to fail.” Had the free markets been allowed to act, unhindered, in the health care field, we would have more choices and less people unable to get the help they need.

Unfortunately, with the public school educated populace; the first place they turn whenever their is a problem is the government. So we have the Hegelian dialectic, “(problem) oh goodness, what a dreadful problem! — (reaction) what are they going to do about it? — (solution) the policies that were originally sought, but did not find the political support are now widely supported and then implemented without much opposition.”

It really saddens me to see my countrymen repeating this cycle over and over again, unaware and uncaring of the fact that it makes their lives much more difficult and constrained. I often wonder when it will become apparent to them that all of this nonsense isn’t working. Will it be when gold is at 3,000? 5,000? 10,000?

I can’t say for sure when decisive action will be taken; but if history is any indicator, inevitably there will come a point at which the pull of the massively centralized state on people’s lives distorts the culture of these people to such an extent that they decide they’ve had enough of it. This would be the point where they realize that it costs so much more to live in a massive welfare state than the benefits that are derived from it and the productive individuals either demand real change, or they pull up anchor and head for some place which will suit their needs.

It looks the yellow metal is preparing for another increase. Tonight it is moving above the key $1000 level to $1008 USD. Based upon the inverted Head & Shoulders formation on the medium-term chart, the target on this move is approximately $1379. If this indeed occurs, it means a tremendous selloff in the US Dollar; because gold almost always acts in inverse of the US dollar.

The extent to which the dollar falls relative to the other currencies depends on how much gold increases relative to those currencies. As has been predicted for years, we are moving from a confidence based economy into a hard asset based economy.

Over then coming weeks, I expect we will see some shocking dollar corrections in the currency markets; which will begin to wreak havoc over the daily lives of billions of people. We are likely to see civil unrest, rapid increases in prices for everyday items and shortages.

Elliott Wave Formation in Gold as it Reacts off of its all-time high at $1037.

Gold broke out of the recent consolidation wedge, confirming some recent bullish activity.