How high is high?

The sharp rise in gold has prompted efforts by commentators to place the rally in historical context and to project the yellow metal's trajectory going forward.

Eric Hommelberg points out that relative gold (the gold price divided by its 200-day moving average) has "plenty of up-side potential" before hitting its sell zone. He notes that an "emergency rate cut in 1987 launched the gold shares by 50% in just three weeks."

But Hommelberg also expects resistance in gold at $730 and in the HUI index of unhedged gold-mining stocks at 400 — roughly where both are now, in the region of last year's highs. He attributes this to traders' fears that a bearish double top could form here in both gold and the HUI.

The Times Online reports that a leading analyst predicts the price of gold will quadruple by 2010

as buyers seek shelter from prolonged turmoil in mainstream financial markets. According to Christopher Wood, chief strategist at the broker CLSA, market ructions and a collapse of the dollar could send gold prices to more than $3,400 an ounce within the next three years. . . . Mr Wood said that the sub-prime conflagration would be the catalyst for a wider breakdown in markets.

If $3,400 sounds a touch optimistic, Adam Hamilton offers what he calls a conservative estimate of $2,300. He arrives at this figure by adjusting the January 1980 high of $850 for inflation, using the consumer price index — which, he argues, severely lowballs true inflation.

Will gold rise parabolically within the next several years in a mania similar to the one in the 1970s? If so, these are early days yet.