I've made no secret that I'm a contrarian when it comes to gold...

I've made no secret that I'm a contrarian when it comes to gold and once again I'll opt to swim against the tide when it comes to current pricing.

Recently in a post I demonstrated the long term ratio of silver to gold which in my opinion (if history is any guide and it generally is) shows that current pricing is over-extended.

As a further example one only needs to look at January 1980 to see the wild ride that gold had. This period is often referred to on this forum as a reference using inflation to determine a price high in today's dollars.

Gold reached a high of US$850 on the 21st of January and on January 22 the price had skidded US$145. Over the course of the next 8 years gold fell in value by more than 60%.

So why is gold overbought in the present market? Well I believe it's overbought because using the 1980 comparison as some here like to do, you will find that inflation was running at above 10% in most developed countries including the US, UK, France and even Germany was approaching double figures. In fact in early 1980 the rate of inflation in the US was running at more than 12%.

Compare this inflationary period to present day and you will see there is no comparison, in fact the countries most affected by high inflation at present are the developing nations such as China - 6.2%, India - 9.8%, Brazil - 7.2%, Russia - 8.2% and then there is Vietnam which has breached 20%.

On the other hand if one looks at the major developed nations and their rates of inflation; Germany - 0%, France - 0%, US - 0.4%. Only the UK at 4.4% is showing any signs of being a concern.

It would therefore be my argument that as we are lacking inflationary pressure, at least in the developed nations, perhaps gold is overbought.

I suppose we'll just have to wait and see although when Greece finally defaults many are presuming there will be a flight to gold I on the other hand believe the US$ will rally extremely hard.

Just my thoughts on the subject nothing more ;)

WC8