By Greg Peel

The problem with assuming the price of gold simply has to go higher in the current short and longer term climates is that everyone is pretty much on the same page. And we know that if everyone backs the same horse in a race, the payout is disappointing.

Indeed, it's common knowledge in markets that if everyone goes long the same asset based on the same view then that asset is sure to bubble and burst. But let's face it ? fundamental and technical analysts alike have been waiting for a really good pull-back in gold for the past few months but it just hasn't happened. Gold has struggled to even make a US$100 retracement as it has this year knocked off every big figure from 1400 to 1800, with 1900 only recently providing a bit of resistance.

Respected trader Dennis Gartman has been among those often warning of an impending gold price correction ? not because he is anti-gold, indeed Gartman has long remained a long term gold bull ? but because history suggests the odd clean-up collapse has to occur in order to renew and strengthen an underlying bull trend. But this has just not happened yet, despite the market's odd bout of dumping gold to raise cash to pay margin calls on crashing stock positions.

Gartman is nevertheless a pragmatist, and hence he is not about to abandon his view. Over the last few sessions, gold has been struggling a bit and has made a series of successively lower highs on each upward burst. This is despite the euro having been rather volatile over the same period. Such a technical pattern is not a positive harbinger, and Gartman warns that a lot of hedge funds out there are long stocks and long gold as a hedge.

Successively lower highs means gold is also now toying with a breakdown below its 200-day moving average. A decisive break, and Gartman suggests a move downward through US$1802-1807 we be so, would no doubt set off significant stop loss orders. Selling would be intensified if the break came on a weak day in stock markets, such that a round of cash raising through gold selling is chasing and/or triggering the stop loss orders.

So be warned, again, that there remains a real risk of a significant pull-back in the gold price in the shorter term. But that said, it's still very difficult to find anyone who can put the case for an end to the longer term bull market in gold.

Certainly not William Weyjens, of ProfiTimes.com. Weygens has had a look at the gold chart for 2010-11 and then had a look at the gold chart from 1978-79. Remember that while gold is nominally as high as its ever been right now, in real terms it is yet to breach the all-time high marked in 1980 which in today's dollars is considered to equate to about US$2400/oz. The gold bulls believe this level is soon to be re-tested.

And whaddya know ? overlaying the two charts from three decades apart provides for eerily close correlation. If one is the perfect predictor for the other, then gold will now consolidate for about one and a half months, perhaps falling as low as US$1700/oz, before doubling. Yes ? doubling. Gold did just that in 1980.

Now I personally believe the most powerful and consistently correct technical tool is a tossed coin, but then I wouldn't be foolish enough as to bait a religious fundamentalist. In other words, the reason why charts often do appear to work is because predictions do tend to come true if enough people believe. I don't mean the advent, I just mean movements in asset prices. If the whole world knows that X price is a technical support level, then there they will buy it. The price will then rise, and everyone will worship at the feet of the all-seeing technical analyst.

As to whether this will all work in the case of a doubling of the gold price in 2012, well I wouldn't be betting the family jewels. But stranger things have happened. What I'd be more concerned about is what occurs fundamentally to make gold double in price (which implies reaching over US$3600 at this point) in the short term. A collapse of the eurozone? That would mean a collapse of stock prices, which would in turn set off margin calls, which in turn would mean investors would need to raise buckets of cash by selling...um, gold?

Anyhoo. Weyjens is not the only commentator to also note that stock prices of global gold miners have been lagging way behind movements in the underlying gold price these past couple of years. Over the past twelve months, for example, the price of Aussie dollar gold has risen 21% while the price of Australia's biggest gold miner, Newcrest ((NCM)), has risen...well actually it's gone nowhere.

The simple answer to the vexing question is that mining costs have also risen sharply, thus offsetting the benefits of higher gold price. But then one might be forced to note that the reason gold hit its peak in 1980 was due to an extraordinary spike in inflation. And you guessed ? mining shares were also lagging the gold price in the late seventies.

We probably best also remember here that when gold hit it's all-time high in 1980, it stayed there for about five minutes before plunging over one third in price. In another two years it was down two-thirds. Weyjens notes that the prices of mining stocks also plunged initially when gold plunged but in the months that followed, they doubled.

Will history repeat? I'll leave it to you to decide.

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