The current bull run in spot gold prices could mirror the climb to dizzying heights seen in 1980, Reuters market analyst Wang Tao said, adding that bullion prices were increasingly becoming emotion driven.
In 1980, gold climbed to USD 835, completing a bull cycle that started at USD 34.95 in 1970, Wang said.
That cycle was corrective, made of three small waves labeled as "a-b-c", and the wave "c" traveled 4.618 times the length of the wave "a".
"That ratio may repeat under the present scenario, indicating gold could hit about USD 4,000 over the next few years," Wang said.
But he cautioned that it was too aggressive to target USD 4,000 right now, saying he would rather target USD 2,345 by the end of this year, which is the 261.8 percent Fibonacci projection level of the current wave "C", based on his wave count and a Fibonacci projection analysis.
The wave "C" is composed of five small waves, with the current rally labeled as a wave "V", the final stage of a five-wave cycle, Wang said.
The final stage is often the fiercest rally in a commodities market, as seen in the sharp rise over the past several weeks, he said.
While several political and financial uncertainties -- such as high inflation and oil price, Richard Nixon`s action to detach the US dollar from gold and Soviet intervention in Afghanistan -- led to the rally in gold to USD 835 in 1980, there are even more reasons for a surge in rices now, Wang said.
"Today`s situation could be worse, as risk aversion has taken tight hold of people`s psychology."
The G-7 and US government are seen running out of resources to rescue the economy, which has been hit hard by the bankruptcies following the 2008 subprime debt, persistent worries that the sovereign debt crisis in euro zone peripheral countries may spread to bigger regional economies, high inflation in emerging markets and soaring commodities prices.
Central banks from South Korea, Mexico and Russia to Thailand have been adding gold to their reserves in a sign of waning faith in the West`s benchmark bonds and currencies like the dollar and the euro.
Spot gold prices could rise further towards the 1980`s inflation-adjusted record price of just below USD 2,500, Wang said.