PREDICTIONS FOR GOLD
There seems to be an almost fanatical obsession with ‘fortune telling’ when it comes to the financial markets. Gold is no exception.
It is worth taking a look back at some earlier predictions to help put things in perspective…
EXAMPLE NO. 1
Gold Forecast $6000, And Gold Mining Analysis Through Visualization January 23, 2012
Quote: “If the current gold bull market was to follow the timing and extent of the 70s bull market, the gold price would reach $6000 before 2014.”
The price of gold on the day the article appeared in print was $1679 oz. In March 2014 the price of gold was down to $1382 oz. and by year end 2014 gold was priced at $1181 oz.
How far off base can a price prediction be? Not only did gold not reach 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, 2014.
The problem is not the plausibility of $6000.00 gold. It is both plausible and possible. However, the prediction was specifically time-oriented and horrendously misjudged in terms of timing and direction.
EXAMPLE NO. 2
JPMorgan Forecasts Gold $1,800 By Mid 2013 February 1, 2013
Quote: “JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And “Escalating Instability” In Middle East J.P. Morgan Chase & Co. said gold will rise to $1,800 an ounce by the middle of 2013, with the mining industry in South Africa “in crisis,” according to Bloomberg.“
The price of gold on the date the headline appeared was $1667.00 per ounce. Five months later on June 29, 2013, the price of gold was $1233.00 per ounce.
The call for $1800.00 gold was a ‘safe’ prediction. Only an eight percent increase from the existing (then) level of $1667.00 would have resulted in a gold price of $1800.00.
But, as in the previous example, the price went south with a vengeance. In this case, gold’s price dropped twenty-six percent in five short months.
FINANCIAL MARKETS ARE THE NEW CASINOS
The time periods which we consider and focus on with respect to analysis and investing – be it gold, stocks, real estate, etc. – have become increasingly short-term. In fact, the financial markets seem to be more characteristic of casino-type activity. Investing has become speculation.
Also the volatility is exponentially greater. At times it seems more like a crap-shoot than fundamental investing, with products such as leveraged ETFs, options on futures, and more.
Don’t get me wrong. I am not against speculating. Speculators serve the markets well and provide liquidity which otherwise might not be there. Their role is critical to the orderly function of the markets. Things would always be worse without speculators. But the nature of the financial markets has changed radically and investors need to recognize that fact.
The single most serious factor of concern with regard to orderly functioning of today’s financial markets is systemic risk. This is true on a world-wide basis and no country or market is immune.
With these things in mind, can anyone really make predictions with any degree of reliability or accuracy? I think not. And the predictions that are made seem to be either too traditionally conservative given the explosive – and implosive – nature of the markets; or they tend to be just plain ridiculous.
CURRENT UPSIDE POTENTIAL FOR GOLD
The average monthly closing price for gold in July 2020 was $1971 oz. which was followed the next month by an intraday peak of $2058 oz.
Due to the additional loss in US dollar purchasing power since that time, the inflation-adjusted gold price peak for August 2020 is now $2114 oz.
With gold at $1820 oz. the current upside potential is limited to approximately $290 oz., ($2114 oz. – $1820 oz), or sixteen percent. (see The Meaning Behind Gold’s Triple Top)
On the other hand, with near-term potential downside for gold at $1375-1400 oz. (see Gold Has Lots Of Potential Downside), the risk reward ratio is unfavorable for bets on the long side.
SUGGESTIONS FOR 2022
A suggestion to the gold ‘swamis’: rather than more predictions, how about new resolutions? Some possibilities might include…
- Resolve to view gold for what it is – real money; not an investment.
- Study and learn the history of gold as money.
- Stop expecting gold to be the “next big thing”.
- Scale back your unrealistic expectations. (see Gold And Unrealistic Expectations)
Have a fabulous 2022!
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!