Gold for immediate delivery may reach $2,000 an ounce by the yearend, extending this year's gain to 41 percent, according to the median forecast in a Bloomberg survey of 13 traders and analysts at a conference in Kovalam in South India on Aug. 20. That would be the most since the 127 percent surge in 1979, according to Bloomberg data.

Eoin Treacy's view I mentioned in a piece on August 18th that gold was not quite as overextended relative to the 200-day MA as it had been at medium-term peaks in 2006 and 2008. Since then it has increased to a 27% overextension. I thought it might be instructive to create an indicator showing gold's percentage divergence from the 200-day MA.

This long-term chart depicts two massive overextensions during the 1970s. The first when gold convertibility was suspended, and the second as inflationary concerns peaked and interest rates spiked higher.

This chart of the last decade illustrates four occasions since 2006 when prices have become overextended relative to the 200-day MA by more than 20%. The first two ended with a substantial reaction. Over the last two years, gold's reactions have been limited to approximately $100-$120. A reaction of greater than that magnitude, particularly if it occurs in a dynamic fashion, would likely signal a medium-term peak has been reached.