Is this the end of gold's great bull run?

Last week, I wrote about the grains (see: Wheat's biggest bull market could be about to end badly) and compared them to the uranium bubble of 2007. Unsurprisingly, this wasn’t too popular with people who were backing wheat, and there were a few grumpy comments and emails. But since then the May CBOT wheat contract has gone from a high of 1,360 to 1,087, a correction of around 20%.

One of the emails made a very interesting point however that I’d like to address:

'Dominic Frisby put a link to a "bubble graph" to illustrate his point. If you take a graph of the gold price for the last five years, it fits very neatly onto the graph, first sell-off/bear trap between 1/06 and 7/06, and the price now embarking on the enthusiasm/greed curve...'

I agree. Gold – and even more so silver – trade with repeating patterns. We get these six- to nine-month moves, towards the end of which the metals run up very quickly. This final enthusiasm / greed curve (see the chart here) ends with a nasty correction.

This was very apparent in May 2006. The six to nine-month run is usually followed by a period of over a year in which the metals then consolidate. We are in the early to mid-stages of the enthusiasm / greed curve and this is when you need to be detached and vigilant.

However, these are in my opinion 'mini-bubbles', or spikes, that are occurring within a greater, steady uptrend in precious metals that will take us as far as 2010 and beyond. When the final, multi-year blow-off occurs, it will be greater than the famous 1980 spike. You want to make sure you already own as much gold, silver and related assets as possible, so that you are positioned and ready. Then you can sell into the rally.

Of course, if you’ve been burnt before by gold’s long bear market, you won’t be convinced. My mum bought gold in the 1970s. She is not buying gold now. (Despite my advice).

A couple of weeks back I wrote about Beartooth Platinum (CA:BTP). Their drill results finally came out last Friday. The stock rose rapidly to 19c with a huge number of shares changing hands; and then retraced to around 13.5c on lighter volume. (I would expect it to go back and retest the highs before long).

But there was no doubling and tripling of the share price, nor was there a painful sell-off. This is because no one, management included, quite understands what they have yet.

Drilling took place over a huge area with holes as much as six miles apart. Every drill hole found mineralisation. That is exceptional and indicates the enormous potential size and strength of the system. However, the general quality of the minerals was not high grade, but bulk grade (i.e. low quality). There is something there, but the drill has not yet hit the bullseye, assuming there is one.

I had a long meeting with Beartooth's CEO Mike Johnson and his head geologist yesterday and I've never seen them so pumped up and excited. There are all sorts or parallels between this and the Platreef section Buschveld complex in South Africa. That probably doesn’t mean much to most of you, but when I explain that the Bushvelt, though a tiny area, produces over 70% of global platinum, you can see why Beartooth might be excited.

The company’s ultimate hope is that they have something similar, though on a smaller scale. But it will take at least another round of drilling before we can begin to know what they have. There are some more results due back from the lab in a few weeks. Watch this space. Welcome to mining exploration…

Turning to the wider markets…

London's FTSE 100 index fell 50 points to end the day at 5,767 yesterday, tracking falls on Wall Street. Insurer Admiral suffered the day's worst losses despite reporting better-than-expected profits for 2007. The group predicted a much tougher year for its comparison website Confused.com and Citigroup downgraded its shares, which fell by over 15%. For a full market report, see: London market close

Elsewhere in Europe, the Paris CAC-40 closed 66 points lower, at 4,675. Over in Frankfurt, the DAX-30 fell 144 points to end the day at 6,545.

Across the Atlantic, stocks rallied in the final hour of trading yesterday on talk that a bailout for struggling bond insurer Ambac was imminent. The Dow Jones recovered from an earlier slump of nearly 200 points to end the day 45 points in the red, at 12,213. The broader S&P 500 was down 4 points, at 1,326. And the tech-rich Nasdaq closed one point higher, at 2,260.

In Asia, a fall in capital spending by domestic businesses for the third quarter in a row saw the Japanese Nikkei lose 20 points to end the session at 12,972. In Hong Kong, the Hang Seng was 5 points lower, at 23,114.

Crude oil futures fell by nearly $3 to $99.52 in New York yesterday, but had edged up to $99.85 this morning. Brent spot was at $98.44 in London.

Heavy selling by speculators saw gold fall to as low as $963.20 yesterday, though it had edged up to $965.40 today. Silver, meanwhile, had fallen to $19.62.

In the currency markets, the pound fell to 1.9725 against the dollar and hit its lowest level against the euro since the single currency was launched in 1999 - 1.3031. The dollar, meanwhile, was at 0.6952 against the euro and 103.68 against the Japanese yen.

And in London this morning, a survey by Nationwide revealed that consumer confidence fell to its lowest level in three years in February. Senior Nationwide economist Martin Gahbauer said that "a continued downtrend... is to be expected given the effect of higher food and fuel costs on people's pockets".

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