September 25, 2011

Gold Crashes $100 in a Day... Sign of More to Come?

On Friday the price of gold dropped over $100 an ounce.   That is the largest single day dollar value drop in gold prices on record.

The $100 drop is a 6% drop in one day.   Gold peaked at a whopping $1895 earlier this month on Sept. 5th.   With it now trading at $1657 that is a drop of 12% within 3 weeks time.

For a while I've had a negative outlook on gold prices.   I've felt that gold was in a bubble that is going to burst sooner or later.

Last year I gave my thoughts on how fast could gold drop?  It can drop a lot in not too short a time.  Gold has dropped as much as 43% in as short as 2 months.   And over 2.5 years from Jan. 1980 to June 1982 it lost 65% of its value.

My history on predicting gold has not been great.   I first looked at gold nearly 3 years ago when I examined the Historical prices of gold  I found that gold prices have been volatile and not had great returns over the long run and decided that in my opinion that gold is not a solid investment.   Since I wrote that gold more than doubled in value in 3 years.    Later in 2009 I stated my opinion that gold had peaked over a year ago   I was clearly proven wrong when it hit a new record high just a few months after that

I also considered the question Is Gold a good inflation hedge? My conclusion was that it isn't really. 

I'm still of the opinion that gold is in a bubble and it will eventually pop and drop in value considerably.    It could drop another 20-50% this year.     Heck why not... I'll go ahead and put myself on record with another prediction on gold prices.   I am thinking gold will drop under $1300 by the end of 2011 and then be under $1000 by the end of 2012.   But given my poor record predicting the direction of gold prices I wouldn't bet anything on my predictions.    Its also possible that gold could recover and then double in value within 12-24 months.   We'll just have to wait and see.

For the record, I do not own any gold or gold investments.  My wife had some shares of a gold mutual fund but she sold it.   I'm not sure exactly what her return on that investment was.

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