"I think [gold] is obviously overbought, and I do expect a correction at some point," Lundin says. "But one thing about gold is that it has repeatedly made prognosticators look foolish."
In the short term, Lundin says that large short positions -- or bets that the price of gold would fall -- have been punished since the start of the year, which should guarantee further upside for the price of bullion. As gold prices refuse to drop significantly, the owners of those positions (most likely hedge funds) are increasingly forced to buy gold to cover their bets, creating a self-reinforcing mechanism called a "short squeeze."
But before or shortly after $600 is reached, the "smart money" may start anticipating a seasonal pullback in gold prices, which typically occurs between March and May, Lundin says.
That's all in the short term, of course. Lundin's conservative estimate for this year is that the $650 will easily be reached. But he doesn't bar the idea that speculative fever may push it to test its historic highs around $850, which were last touched in January 1980. Adjusted for inflation, this would equate to more than $2,000 in current dollar terms.
"Should the nominal high of $850 be touched, then the next target would be $2,200," Lundin says.
That's also the call of French bank Credit Agricole Cheuvreux, which sees the possibility of a spike to $2,000, without providing a time frame, because of an upcoming short squeeze.
In making the call, Cheuvreux analyst Paul Mylchreest revisits a conspiracy theory -- favored by hardcore gold bugs -- that central banks have roughly 10,000-15,000 fewer tons of gold than their officially reported reserves of 31,000 tons. Much of that disappeared gold was loaned secretly over the years to bring down the price of gold in times of crises, Mylchreest says. The banks' counterparties meanwhile have to replace the gold they had borrowed and this is causing a giant short squeeze, the theory goes.
Whether the theory is true or not, the $2,000-per-ounce call brings to mind Goldman Sachs' famous call that crude oil might experience a "super-spike" that would take it to $100 per barrel. It wasn't long after the call before crude oil prices experienced a correction.