March 17, 2013

Is Golds Run Finally Coming to an End?

I've been stubbornly bearish on gold for several years.   For a while through 2010 I was saying that gold couldn't keep going up in price.  Then I watched as gold prices broke record after record for years.   It now seems though that golds last record is a ways in the rear view mirror.  If you look at the chart  of gold prices its no longer a steep mountain of success with occasional slight pitfalls but much more similar to a peak that has passed.

Check out the historical gold price chart for 2000 to 2013 from Kitco:

That does look like the peak might be behind us.  

I recently read a negative outlook on gold in this article
The Uptrend in Gold Is Broken, Next Stop Could Be $1000: Don Hays

If gold were to hit $1000 then that would be about 35-40% drop from current prices.  Is that likely or possible?

When I discussed the question : How Fast *Could* Gold Drop?
I looking at past drops in gold prices and I concluded then that
"In my opinion then when gold drops next then its pretty likely we could see a drop of about 30% within a 12 month period and potentially 40% losses within a 30 month timeframe."

Right now gold is around $1600 which is about 15% off of the peak it hit in 2011.   If gold continues to drop further then we could quite easily see it go down 40% from its peak or about $1150 levels within a year. 

It is quite possible gold could drop to $1000 within 12 months. 


But I'd caution you about listening to my gold related predictions.    I was expecting steep drops in gold about 1.5 year ago when I asked Gold Crashes $100 in a Day... Sign of More to Come?
Then I said :
" 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. "

I was pretty wrong on that one.

But of course I wasn't betting the farm on my prediction then and I pointed out that
'  Its also possible that gold could recover and then double in value within 12-24 months.   We'll just have to wait and see.'

Gold could still go up today.   Look again at that chart from Kitco and notice the slump in prices from 2008 to 2009.  In 2008 the price hit about $1000 and then slid around 30% down to around $700.   That was a pretty hefty drop around the financial crisis during the Great Recession.   Gold could have dropped further then but instead it more than doubled over the next 3 years.

Gold could go either way today.  It could drop further and sink down to $1000 or even lower.   Or it could rebound and go back up again and hit another peak.

Personally I think its only a matter of time till gold takes a significant drop and then prices stay stagnant.  In that Yahoo article Don hays says
"We think of gold as nothing but a fear index," Hays says in the attached video. "It moves up when people are afraid."

I would agree with that in general.   I would also say that people currently have been buying gold because they want to be on the ride up as its value climbs.  I think that the more gold stays stagnant and people see stocks climb faster then the more people will jump off the gold bandwagon.

By the way, I'm not 100% against buying gold.  If you want to own precious metals as a commodity asset then I think its OK to put maybe up to 10% of your money in such an asset.   But If You Buy Gold then Use an ETF

Bottom Line :  I'm still bearish on gold and I expect it will drop further.   But hey, I'm starting to sound like the boy that cried wolf on this one.   Eventually though this broken clock will be right.

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1 comment:

  1. Thanks for the analysis. Chart is interesting, showing nominal price/oz. If it were to go back to 1980 (another 20 years to the left) it would show prices where they were in 2007. Not factoring inflation, which puts today's prices at the same buying power as in 1980. Thanks Jim!

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