The gold market's fierce rally this week could be due for a correction if the telephone on hedge fund manager Dennis Gartman's desk remains true to form as a leading indicator.
Gartman, who also publishes a newsletter on commodities and currencies, said his phone has been ringing off the hook this week with a record number of media questions about the gold rally. His last flood of similar media calls in December preceded a gold price correction of nearly $100 per ounce.
"All they want to know is 'How much higher can gold go? Wow, isn't it amazing?"' Gartman said. He said a market is usually overbought by the time so many reporters ask him to shed light on a rally.
In 10 weeks, gold has gained about $200 an ounce in a rally to Wednesday's all-time high at $1,349.80 an ounce. Bullion has soared more than fivefold from $250 an ounce back in 2001.
Most market watchers say gold's rally can keep firing on all cylinders due to economic uncertainty, expectations of further U.S. monetary easing and inflation fears.
Gartman said the gold market is "frothy and due for a material correction," and prices could tumble to $1,200 within two months. Still, he believes the metal's long-term bull trend remained intact.
But some see signs of a gold peak. They point to the proliferation of gold retail networks, a public buying frenzy and ominous technical flags as signals gold has become over-extended, even though many remain bullish in the long run.
In two previous rallies — March and December of 2009 — gold prices corrected sharply after a sudden surge.
Technical charts show the gold market as extremely overbought. The relative strength index has surged to above 90 in the last month, the highest level since November of 2009, analysts said.
Billionaire financier George Soros last month called gold the "ultimate bubble" that was not safe and would not last forever.
GOLD BUYBACK ADS DISAPPEARED
In another sign that gold may be due for a correction, commercials from retailers seeking to buy back gold from individuals have been scarce lately.
When gold prices began to take off back in 2008, television, radio and newspapers were filled with ads offering to buy and sell gold.
"But now, you only have ads enticing people to buy gold products. That almost always marks an interim top," Gartman said.
Prior to the corrections to the early 1980s rallies, people were "lining up on the streets selling silver and gold products", which showed public's desire to get out of the metals, said George Gero, precious metals strategist at RBC Capital Markets.
Gero, a veteran trader with 40 years of experience in the metals business, said tremendous interest in bullion coins now could be a warning signal.
On Monday, the U.S. Mint said it will resume offering the popular one-ounce American Eagle silver coins. The "Silver Eagles" were not available last year due to "unprecedented high" investor demand, the Mint said.
Another innovation to boost retail gold sales is the gold vending machines by Gold to Go, a German company which runs a dozen "Gold ATMs" dispensing gold bars and coins at prices updated every 10 minutes. Gold to Go is in the process of expanding into the United States, according to reports.
STILL BELOW INFLATION-ADJUSTED RECORD
Even though the price of gold has marched into uncharted territory, DundeeWealth's Chief Economist Martin Murenbeeld said bullion has room to surpass its inflation-adjusted all-time highs at above $2,200.
"My concern is that when the Fed does raise interest rates aggressively, it could trigger a sell-off, but we don't see the Fed anywhere near that point," said Murenbeeld, a former professor at the University of Toronto.
Last week, Federal Reserve Chairman Ben Bernanke and three Fed policymakers signaled more action would likely be needed to pump cash into the economy unless the outlook improves.
Gartman compared gold's recent run to crude oil's rally to nearly $150 a barrel in July 2008.
"The question is how much further can this go? Is it too late to buy even though you knew the top is upon you?"
© 2015 Thomson/Reuters. All rights reserved.