When I try to imagine what stage we are at in this soon to be gold bubble, I think we are somewhere in the awareness stage where institutional investors step in and bid up $gold along with the large cap producers.

bubblesandmanias_falcor.gif  (graphic from Falcor)

I really don’t think we have seen the first major sell off in POG since the bull market started as shown in your LT gold chart: 

 rambus_lt_gold.png  (I could also make an argument for a five wave structure up - close to completing)

What drivers will cause this sell-off?  IMO, this will most likely come from disinflationary expectations rooted in the possibility of a US or even global recession or a broad based deleveraging of global risk exposure (i.e. the unwinding of the yen carry trade - YCT). 

As the Adens have pointed out, gold prices and ST interest rates tend to move together.  We have seen the opposite as of the past few months.  In particular, take a gander at what happened around the 1975-76 period.  This is the period that I’m concerned about right now.

pogandstrates.jpg   (Higher ST rates are typically bullish for gold, as the FED is often behind the curve)

Most of my argument above is predicated upon a decrease in inflationary concerns - coupled with a deleveraging of global risk taking.  So, my thinking is that we need to foremost watch the inflation indicators - other than gold itself or ST rates. 

One particularly good indicator of this are the TIP bond prices.  The higher the price, the greater near-term inflationary expectations.  Right now this chart (below) looks very bullish, but we need to watch it closely.  Another great indicator to keep an eagle_eye.jpg on is the $XEU:$XJY relationship, which i feel most represents the YCT.

tipsvsgoldvsstrates.png

I think this current situation is part of the reason many miner shares are hesitating. Yes, once in a while I’m good for a solid brick in the wall of worry.  All in the name of fair and balanced discussion purposes only…