Sometimes it is frustrating to see the focus on gold price predictions. The more sensational and spectacular the price forecast, the greater the cacophony.
Some of these predictions are worth taking a look at to help put things in perspective.
HEADLINE: $ 6000 Gold Forecast and Gold Mining Analysis by Visualization January 23, 2012
Appointment: “If the current bull market for gold kept pace with and the scope of the bull market of the 1970s, the price of gold would reach $ 6,000 by 2014. “
Gold price on January 23, 2012: $ 1,679.00 per ounce.
Gold price on March 14, 2014: $ 1,382.00 an ounce.
Gold price on December 31, 2014: $ 1,181.00 per ounce.
How far from the base can a price prediction be? Not only did gold fail to hit the target price, it went in the opposite direction, beginning that same month, and proceeded to decline by thirty percent over the next two years, ending at $ 1205.00 per ounce on December 31, 2013. .
The problem is not the plausibility of the $ 6,000.00 gold. It is very plausible and possible; maybe even probable. However, the prediction was specifically time-oriented and terribly misjudged in terms of direction and timing.
All of that is excusable. Unless you own a subscription service and / or make investment recommendations to others, or provide business advice.
HEADLINE: JPMorgan Forecasts $ 1,800 Gold for Mid-2013 01Feb2013
Appointment:“JPMorgan sees gold at $ 1,800 in mid-2013, while South Africa “in crisis” and “growing instability” in the Middle East JP Morgan Chase & Co. said gold will rise to $ 1,800 an ounce in mid-2013, with the industry South African mining company “in crisis”, according to Bloomberg.“
The price of gold on the date the headline appeared was $ 1,667.00 an ounce. Five months later, on June 29, 2013, the price of gold was $ 1,233.00 an ounce.
The $ 1800.00 gold call was a “safe” prediction. Just an eight percent increase from the (then) existing level of $ 1667.00 would have resulted in a gold price of $ 1800.00.
But, as in the previous example, the price fell sharply; this time dropping 26 percent in five short months.
HEADLINE: Trump victory signs $ 1,500 Gold … 10Nov2016
Quote: “A Trump Presidential Victory In The US Indicates $ 1,500 An Ounce Of Gold … In The Interim Term.”
Gold price on November 10, 2016: $ 1,258.00 per ounce.
Gold price on July 31, 2017: $ 1268.00 per ounce.
Apparently, gold did not see the ‘signal’ as its current price is almost identical to the price of the day the prediction appeared in print just after the elections last November.
And what does the writer mean by “middle term”? The longer the time period, the lower the prediction value. The projected increase in dollars is twenty percent. If it takes two years, that’s roughly 10 percent per year. In that case, or if it’s been going on for more than two years, is the headline in bold worth it?
HEADLINE: Trump will send the price of gold to $ 10,000 10Nov2016
Gold prices and dates are the same as in the previous example. With gold just where it was ten months ago, when could we expect any progress towards that price target?
The most outlandish price predictions usually center on a collapse or collapse of the monetary system. The collapse comes as a result of the complete repudiation of the US dollar after decades of depreciation in value. People simply refuse to accept and retain US dollars in exchange for the goods and services offered to them.
Now suppose that you currently own gold. Would you sell it? At what price? By how many worthless US dollars would it be separated from an ounce of gold?
If someone offered you a billion dollar monopoly for an ounce of gold today, would you take it? How about ten billion?
Well, what if we see a sharp drop in the value of the US dollar over the next several years? Let’s say the decline equates to a loss of purchasing power per dollar of fifty percent from current levels. This would equate to a gold price of approximately $ 2,500.00 per ounce, a doubling of current levels.
This is true if gold and the US dollar are currently in equilibrium (I think they are). In other words, the current price of gold at $ 1,250 / 60 is an accurate reflection of the cumulative decline in the value of the US dollar since 1913.
The fifty percent decline in the purchasing power of the US dollar would be reflected in higher prices for other goods and services; a pattern that has become all too familiar over the last hundred years.
If there is a working market, and assuming you sell some gold and make a profit, how much more will it cost for whatever else you decide to buy? Do you really think you will be able to buy other items of value at “discount” prices at that time?
Gold, in 1913, cost $ 20 an ounce. It is currently $ 1260.00 per ounce. That is an increase of more than sixty times. But it does not represent a profit. Because the general level of prices of goods and services today, in general terms, is sixty times higher than in 1913.
There are times when you can benefit from sharp movements in gold in short-term situations. These are generally just before major movements in your US dollar price that reflect a realization of the cumulative decline in the dollar’s purchasing power. And, to a lesser extent, recognizing when the expectations of others drive the price of gold far beyond equilibrium vs. The U.S. dollar.
In 1999/2000, gold reached price lows of $ 250-275.00 an ounce. Soon after, it embarked on a decade that culminated with a peak price of about $ 1,900.00 per ounce in 2011.
After its peak in 2011, gold declined for the next five years to a low of just over $ 1000.00 per ounce. A short-lived rally in early 2016 brought it back to near current levels ($ 1250-1350.00) where it has generally held without breaking neither up nor down to a significant degree.
Where were all these ‘experts’ in 1999/2000 and what were they predicting then?
And since 2011/2012? They have been saying pretty much the same thing over and over again. Buy now! Buy more! Before it is too late!
Someday it will be too late. But now it is more a question of financial survival than ever. The obsession with profits, prediction and trading has obscured the real fundamentals.
And one way or another, most people’s earnings are likely to vanish before they do anything significant with it.
Gold, physical gold, is real money. It is real money because it is a store of value. And its value is constant. The value of the US dollar continues to decline over time. The ever-declining value of the US dollar and people’s perception of it, as well as their expectations, determine the price of gold.