price of gold

Wakeup Call – The Price Of Gold Is Headed Lower

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A wakeup call can seem like quite a jolt when it happens, but, usually, we are grateful for it. And even if we didn’t ask for a wakeup call, it can still prove fortuitous. Maybe this will be the case for some of you when you read this.

If you are a long-term holder of physical gold for the right reason, i.e., ‘gold is real money’, and you understand that gold is not an investment, and you are not currently speculating/trading gold with short-term objectives for higher prices, then this could be a benign event for you.

If, on the other hand, you are an ‘investor’, trader, or speculator with expectations for higher gold prices; if you are a long-term investor who is overcommitted to gold financially and emotionally; if you are still waiting for the impending ‘moonshot’ that will bring you wealth untold; if you would like to spare yourself some unnecessary remorse; then you might want to continue reading.

After recently perusing some gold charts for some historical perspective, I was relatively nonplussed; but continued my search. When what to my wondering eyes should appear…

 

 

 

source

The above chart is a 5-year history of gold prices (inflation-adjusted) from August 2013 to August 2018. As you can see, it is not a pretty picture.

Below is the same chart without the inflation adjustment…

 

After looking at both charts, there are a couple of differences that are apparent:

1) the overall result of the price action for the entire period is a loss of slightly more than three hundred dollars per ounce on an inflation-adjusted basis; the second chart’s nominal amount is less than two hundred dollars per ounce

2) a break below $1200.00 per ounce would be a clear violation of the pattern of successively higher lows since December 2015 when viewing the inflation-adjusted chart; the pattern remains intact on the second chart even if gold were to break below $1200.00 and go a bit lower

What is clear on either chart is that gold has broken below a line of support dating back to its price-point low in December 2015. Maybe just as important, the price of gold has been held below a declining line of overhead resistance going back five full years.

How low can gold go? A lot lower than most want to admit. Under reasonably normal conditions, my guess would be $850.00-900.00 per ounce. ($850.00 was the January 1980 high point.)

There is the possibility that it could go lower, too. Or, it might find a floor at $1000.00 per ounce. There are several scenarios but there is only one thing you need to focus on – the U.S. dollar.

If the dollar heads lower and accelerates its long-term decline, then the price of gold will reflect that by moving higher. If, on the other hand, the dollar continues to stabilize and strengthen, then gold’s price will reflect that by continuing to move lower.

It IS that simple. (also see The Case For Gold Is Not About Price)

 

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!

Gold And The Elusive Chase For Profits

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Between the years 1971 and 2011, the price of gold went from $42.00 per ounce to $1900.00 per ounce – a forty-five fold increase. This is depicted on the chart below…

Looking at the chart, it would appear that gold is in a long-term bull market and that continually higher prices over time can be expected. Proponents of this approach to gold cite fundamentals such as a weakening U.S. dollar, social unrest, wars (combat and trade), political instability, etc.

And the numbers seem to bear this out. For the forty-year period between August 1971 and August 2011, the price of gold was up forty-four hundred percent.

But are we really making any money? The chart below paints a clearer picture…

The inflation-adjusted chart immediately above seems to support a severely modified view of gold from that which we mentioned earlier. Rather than long-term, ever-higher, onward and upward, we see strictly defined periods of extreme volatility. Indeed, it appears almost cyclical.

And our previous total return of 4,400 percent for the forty-year period August 1971 to August 2011, is reduced to 900 percent. Even so, that is the equivalent of a 6% average annual return, net of inflation. Which is huge.

(In case you are interested, the average annual return for the S&P 500 – with dividends reinvested – for the same exact time period, is 5.13 percent. That relatively small differential on an annual basis is magnified considerably when you compare cumulative total returns: Gold at 900% vs. S&P 500 at 639%)

So, does the nine hundred percent total return/6% annual return represent a profit?  Yes, most definitely. Net of the effects of inflation, the price of gold increased ten-fold; all of which represents added value. Here’s why…

In 1971, the cost for one loaf of bread was $.24. The average cost for one gallon of gasoline was $.36. With gold at $42.00 per ounce, you could purchase one hundred seventy-five loaves of bread or one hundred seventeen gallons of gasoline (or some combination of the two).

Forty years later, in 2011, the average cost for one loaf of bread was $2.42; and one gallon of gasoline was priced at $3.52. Hence, again, using only one ounce of gold (this time priced at $1900.00 per ounce) you could purchase seven hundred eighty-five loaves of bread or five hundred thirty-nine gallons of gasoline.

The additional six hundred ten (785-175) loaves of bread or four hundred twenty-two (539-117) gallons of gasoline represent an increase in real value/purchasing power for gold for the years between 1971 and 2011.

All of this sounds good. But there are some other issues. Looking again at the first chart, we can see that the price of gold increased from $850.00 per ounce at its 1980 high point to $1900.00 per ounce at its 2011 high point. This translates to a gain of $1050.00 ($1900.00 – $850.00) per ounce, or one hundred twenty-three percent.

Unfortunately, on an inflation-adjusted basis, you would have a negative, net return of ten percent. In real terms, the price of gold did not even match its 1980 high. And this result is after waiting for thirty-one years.

Owning gold from January 1980 until August 2011, a total of thirty-one years (during which its price rose from an all-time high of $850.00 per ounce to a subsequent, new all-time high of $1900.00 per ounce), resulted in a cumulative, net loss of ten percent in inflation-adjusted, real terms. 

That doesn’t sound good,  but it is even worse considering the decline in gold’s price since 2011. With gold currently priced at $1240.00 per ounce, the cumulative net loss balloons to forty-four percent (certainly not a supporting factor for the argument that gold is a long-term inflation hedge).

Another way of looking at it is that all of the real profits – nine hundred percent cumulative total return – from the forty-year period (1971-2011)  came in the first nine years, 1971-80.

When President Nixon suspended convertibility of the U.S. dollar into gold in 1971, his action ushered in a decade-long period of U.S. dollar weakness and rejection. The effects of inflation created over the previous four decades, initially in an attempt to extricate us from the economic depression of the thirties, then to fund the country’s expenses relative to its involvement in WWII, etc. came roaring to life in the form of higher prices for all goods and services.

The 1970s were a catch-up period for the price of gold relative to the U.S. dollar’s loss in value over the previous four decades. That, and the anxiety and anticipation created by the realization that things were far worse than we had previously known, led to outsized gains.

Gold’s failure to make a new, inflation-adjusted high in 2011 is perfectly reasonable.  This is because gold’s upward price movement reflected the extent of ongoing U.S. dollar devaluation that had occurred since the eighties. Whereas, the price movement upward in the seventies reflected U.S dollar devaluation that had occurred over the prior forty years – a period more than twice as long.

Gold’s price is not an indication of its value. The value of gold is constant and does not change. Its price is a reflection of the value of the U.S. dollar. Nothing more. Nothing less. Nothing else.

And what is happening to the US dollar?  It is in a state of constant  deterioration, punctuated with periods of relative stability.

And the peaks and low points for those periods are seen clearly on both  charts (1933, 1971, 1980, 2001, 2011) and correspond with highs and lows for the price of gold, both in nominal and real terms.

Gold is not an investment. When gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic. If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.

In light of all this, what can we expect from gold looking ahead? Or, better phrased, what can we expect from the U.S. dollar; and how does that translate to expectations for the price of gold?

One possibility is that the U.S. dollar could continue to stabilize and strengthen along with an improving economy. The price of gold would stabilize and move lower reflecting the dollar’s relative strength. This is similar to what happened between 1980 and 2001, and what we are currently experiencing since 2011. And it could go on this way for years. During periods like this, you should not expect gold’s price to increase.

Another scenario is that the dollar could renew its long-term decline in rapidly accelerating fashion, eventually ending in complete rejection and repudiation. In which case, owning gold is imperative for wealth preservation and financial survival. But any profits would be elusive. At a time like that, the U.S. dollar price of gold becomes meaningless. What does matter, and what is critical, is how much gold you own.

Lastly, attempts by the Federal Reserve to unwind its horrendously bloated balance sheet and encourage a return to a relatively normal level of interest rates could backfire. We could see a another credit collapse. This one would be much worse than anything we have experienced to date, and the unwinding of prices for all assets (stocks, bonds, real estate, commodities) denominated in dollars would trigger a full-scale depression and lead to a suppression of most economic activity. Don’t look for gold to save you. The U.S. dollar would increase in value; thus, gold’s price in dollars would decline significantly. The US dollar would actually buy more, not less. But the supply of US dollars would be significantly less.  This is true deflation, and it is the exact opposite of inflation.

There are, of course, variations and combinations of the above scenarios that may play out. Any actions or responses by government and the Federal Reserve will affect the magnitude and duration of various crises.

Whatever the course of events, or how they unfold, there is no fundamental reason for gold to make new inflation-adjusted highs.

The case for gold is not about price. It is about value. And its value will become readily apparent when governments and individuals are scrambling amid the ruins of our financial system looking for something, anything, to replace worthless paper currencies. which are nothing more than substitutes for real money.

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!

What’s Up With Gold?

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WHAT’S UP WITH GOLD?

What are we waiting for? The other shoe to drop; the next big move?

Gold’s reign as the “next big thing” ended seven years ago. Too many people don’t want to admit that, but its true. Those who are ‘bullish’ on gold cannot let go.

Their behavior is typical of those who have missed the boat. And they don’t want to admit it, or believe it. And their problem is compounded by the fact that they originally viewed gold as a quality investment.

Now they continue to point out all of the fundamental reasons gold should go much higher. We are told it is undervalued, unappreciated, unloved. And, of course, the price is manipulated, too.

Those things may provide a bit of consolation, but they don’t mask the pain of losing big bucks. And the interminable wait drags on.

We could say it was simply a matter of (poor) timing. However, most people who have a basic understanding of investment fundamentals would argue otherwise.

And they would be right. In the long-term, time works in our favor – not against us. An investment with good fundamentals – over time – becomes more valuable, not less valuable. And that relentless march upwards helps protect us against our own timing errors.

We don’t have to be perfect market-timers to be successful investors.

And it isn’t that gold’s price can’t go a lot higher, either. It can. And it probably will. And it has done so in the past.

After peaking at $850.00 per ounce in January 1980, the price of gold dropped as low as $250.00 per ounce twenty years later and then soared to $1900.oo per ounce in August 2011.  But will you (or can you) wait thirty-one years to be vindicated?

There is a better explanation.

At the heart of disappointment regarding gold’s price action is the specter of unrealistic expectations:

“believing that rational individuals would sooner or later realize the trend and take it into account in forming their (opinions)”

But there is more to it. Much more. And it involves fundamentals. And an understanding of price versus value.

To wit, gold has only one basic fundamental: it is real money.

To further clarify, this means that gold is not an investment.

Do people view gold as an investment? Absolutely. Which is why they are continually surprised and confused at their investment results. They buy gold because they expect the price to go up; and logically so.

The problem is that the premise is wrong.  When someone invests in gold, they are expecting the price to go up as a result of certain factors which they believe are “drivers of gold”.  In other words, they believe that gold responds to certain factors. These factors may include interest rates, social unrest, political instability, government policies/actions, a weak economy, jewelry demand, and various ratios comparing gold to any number of other things.

But, again, that assumes that gold is an investment which is affected by the various things listed. It is not.

And when gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic.  If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.

The price versus value issue is rooted in gold’s fundamental role as real money.

Gold is real money because it meets the qualifications of money. It is a medium of exchange, a measure of value, and a store of value.

The U.S. dollar is a substitute for real money. It is a medium of exchange and a measure of value. But it is not real money because it is not a store of value.

The U.S. dollar, in its role as ‘official’ money, has lost more than ninety-eight percent of its value over the past century.

The price of gold, on the other hand, has increased more than sixty times from $20.67 per ounce to in excess of $1300.00 per ounce.

Gold’s price increase does not mean that it increased in value by sixty-fold. Its price increase is a direct reflection of the ninety-eight percent decline of the U.S. dollar.

Gold is worth somewhere between $1000.00 per ounce and $2000.00 per ounce. This price range correlates to a decline in the U.S. dollar’s value of somewhere between ninety-eight and ninety-nine percent.

At $1300.00 per ounce, gold’s price reflects a decline of 98.3 percent in the value of the U.S. dollar since the inception of the U.S. Federal Reserve Bank in 1913.

Let’s recap.

Gold is real money. It is a store of value. The U.S. dollar (and all paper currencies) are substitutes for real money/original money; i.e., gold.

Gold’s characterization – incorrectly – as an investment (which it is not) leads to unrealistic expectations and unexpected results.

Gold’s value is in its role as real money. Its changing price (ever higher over time) is a direct reflection of changes in the value (ever lower over time) of the U.S. dollar.

As far as gold is concerned, nothing else matters.

(also see How Much Is Gold Really Worth?)

 

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!

Gold – Technical Obfuscation, Fundamentals, Predictions

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It is pretty much expected today that any investment analysis with justifiable conclusions will be steeped in technical study that includes lots of charts.

This seems especially true of gold.

Which is all well and good, I suppose; except for the obfuscation:

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Gold Under $1000 Is A Very Real Possibility

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GOLD UNDER $1000

‎After gold peaked in January 1980 at $850.00 per ounce, it dropped in price by two-thirds (66%) over the next five years. The low in February 1985 was $284.00 per ounce.

At that point it began a strong move upwards over a three-year span peaking at just under $500.00 ($499.75) per ounce in December 1987. That translates to an increase of seventy-six percent.

The advance was solid and well-defined. Those who had been waiting for the price of gold to go back up were confirmed fundamentally and technically. Or so they thought.

With the “clear, technical confirmations” of a “new, bull market in gold” came a deluge of predictions regarding $1,000.00 gold and higher. At the time that would have marked a nearly four-fold increase from its previous  low of $284.00. (That equates similarly to today’s predictions of $4000.00 gold assuming that $1040.00 was the low in December 2015.)

It was not to be. In January 1988, gold began a long an arduous decline which lasted fifteen years. Trading in gold was confined to a range between $300-400.00 per ounce for the next ten years. Then, seemingly as a result of sheer exhaustion, gold broke down through $300.00 per ounce and traded as low as $252.00 per ounce in September 1999. From its temporary peak at $500.00 per ounce to its ultimate low of $252.00 per ounce, gold’s price had dropped fifty percent.

Even after reaching its ultimate low of $252.00 per ounce, gold continued to trade mostly at under $300.00 per ounce for nearly three more years (April 2002).

Let’s see how this compares to more recent history regarding gold.

From its peak in September 2011 at $1895.00 per ounce, gold declined to $1040.00 per ounce over a period of four and one-half year.

Subsequent to that, gold’s price increased by almost thirty percent to $1363.00 per ounce in a period of seven months. Almost fifteen months later, gold has not traded any higher.

Question No. 1: Are we in the midst of a three-year period similar to that which occurred between 1985-88 (with respect to the price of gold)?

Question No. 2: If so, what might we possibly expect going forward?

It is certainly a realistic possibility that the answer to question no. 1 is yes. This is possible even if gold’s price goes higher first.

It seemed a well-known fact that after dropping in price by two-thirds, gold had seen its ultimate low at $284.00 per ounce.  With three successive years of incredibly profitable gains, who would proclaim otherwise? And the technical signals confirmed it.

The situation today is not entirely dissimilar. Whether $1360.00 per ounce is a long-term intermediate/reaction top or not, the prospect for gold to resume a longer-term price decline would not be out of context with its earlier history.

Gold’s initial decline from its peak price in January 1980 lasted for five years and totaled sixty-six percent. Its initial decline from the recent peak in September 2011 lasted for four and one-half years and totaled forty-five percent. Reasonably similar.

Gold’s price increase from its low in February 1985 lasted for three years and totaled seventy-six percent. Its price increase from the recent low in December 2015 has lasted for twenty-two months. At its peak of $1360.00 last summer and again recently this represents an increase of thirty percent. Considerably smaller percentage gains, but not entirely dissimilar when considering the broader picture.

And if gold were to move higher soon it would not negate the possibility of going much lower again and disappointing lots of people.

The additional technical confirmations and increased comfort level that came as gold increased in price from $284.00 to $500.00 between 1985-88 did nothing to stop the subsequent fifteen-year decline to new lows.

If gold were to decline back towards $1000.00 per ounce, how low might it go? What might we expect?

One possibility is that it could trade between $1100.00 and $1300.00 for several years. And then break down below $1000.00. And depending on how quickly it establishes its eventual low point, it might trade for several years under $1000.00. Gold might settle out somewhere just above its previous all-time high in 1980 at $850.00 per ounce. Say $875-$975.00 per ounce.

There are also technical studies that point to a gold price as low as $700.00 per ounce before a resumption of the “eternal” bull market.

Ironically, none of the above is about gold.  It is about the U.S. dollar.

Whatever you think or expect regarding gold, you need to make sure your expectations for the dollar are inversely similar. (see here)

During the entire fifteen year period of gold’s price decline between 1988-2002, the U.S. dollar was gaining in value. When the U.S. dollar peaked in January 2002, gold was priced at $282.00 per ounce (gold had posted its low price of $252.00 a year or two before this but was still trading under $300.00).

At that point, gold and the dollar reversed directions simultaneously. Over the next eleven years, the U.S. dollar gave up nearly thirty percent of its peak value. Gold, meanwhile, gained five hundred and seventy percent in price. That increase seems a bit outsized on the surface, but it is not dissimilar to the outsized declines gold suffered during the previous twenty years while the dollar was gaining in value.

Between September 2011 and January 2016 the U.S. dollar gained significantly and gold’s price declined in similar fashion. The low so far for gold was the $1040.00 per ounce in December 2015.  The peak for the dollar occurred just a few short weeks later in January 2016.

After January 2016, both reversed directions again. The dollar headed lower and gold reversed and went higher. Similar turning points occurred in the summer of 2016 and December 2016.

Which brings us to the present. If gold moves higher from here it will be because of continuing weakness in the U.S. dollar. Conversely, if the U.S. dollar moves higher, it will be reflected in a lower gold price.

(for a scenario about possible gold prices see Gold Price – US$700 Or US$7000?)

 

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!

Gold And The Need To Explain Price Action

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People are obsessed with the price of gold. And the demand for answers to the question “Why?” continues to grow. Why did gold go up/down $20.00 today? Why?

All too eager to provide the answer, journalists respond as follows:

Quote: “A weak U.S. inflation print may be just what gold prices need to finally stay above $1,300.” …WSJ Aug 2016

Seriously? I thought higher gold prices were the result of inflation.

Quote: “Negative interest rates are sweeping the world as countries try to devalue their currencies, and that’s helping the price of gold.” …Feb 2016

The ongoing devaluation of the U.S. dollar has been taking place for over one hundred years. Gold’s continually increasing price – over time – reflects that devaluation. There is no correlation between gold and interest rates.

Quote: “Gold prices were on track for a second straight day of losses Tuesday after United Nations sanctions against North Korea were less severe than many initially expected.” …WSJ Sep 12, 2017

Apparently more severe sanctions would have led (or did lead) to higher gold prices. Why? And why do sanctions that “were less severe” lead to lower gold prices?  The answer in both cases is: they don’t.

Quote: Analysts and investors have also said that demand for haven assets has weakened early in the week because damage from Hurricane Irma was less severe than expected. Many investors favor gold during times of geopolitical uncertainty. …WSJ Sep 12, 2017

Another case of unrealistic expectations being dashed on the rocks of reality. Unfortunately, the explanation after the fact is just as bad as the original expectation.  Contrary to the statement above, gold is not influenced or affected by “geopolitical uncertainty”; regardless of what investors think.

Quote: Gold prices climbed Thursday after the European Central Bank left its accommodative monetary policies in place. …WSJ Sep 12, 2017

Any other central bank’s actions are still secondary to the U.S. Federal Reserve Bank and its actions concerning the U.S. dollar. Actions by other central banks are more properly viewed in the context of their own respective economies and/or relative to the U.S dollar. Gold’s price is the direct inverse reflection of the value of the U.S. dollar.

The underlying problem is fundamental.  Most people either are unaware or refuse to accept the one basic principle that defines and explains gold: Gold Is Real Money.

It is necessary, of course, to understand the principle more fully before attempting to answer questions about the price of gold. Further enlightenment on the subject can found here and here.

The lack of knowledge regarding gold leads to answers and explanations for price action that are illogical and incorrect. In the above examples, another factor is that the explanations are headline driven.

It is presumed that any price action of consequence must have a clear explanation. When an explanation isn’t readily apparent, check the headlines; and make something up.

Why did gold go up? New hurricane offshore. Why did gold go down? Effects of storm after making landfall weren’t as bad as expected. Gold is up again.  Well, there is another hurricane offshore and it could be worse than the last one. Nah, find another reason.  How about this? The ECB held firm on interest rates/raised rates/didn’t raise rates/changed their mind, etc.  If that doesn’t work, reverse the facts to suit the circumstances. Inflation refuses to attend the party.  Maybe gold will defy all reasonable logic and ignore core fundamentals.  Maybe gold’s price will go up while the U.S dollar strengthens.

Let’s be clear.  There are short-term, temporary changes in gold’s price that are not the result of its basic identity as real money.  And changes in the gold price occur only when people (traders, investors, etc.) act on their expectations, faulty logic or not.

But those price changes are elusive and will revert to their place within the fundamental trend; namely that gold’s continually higher price over time reflects inversely the continually lower value of the U.S. dollar.

Further, gold’s price decline since August 2011 reflects a strengthening U.S dollar.  It is very possible that trend has not reversed yet, although eventually it will.

And the more recent gold price increase since the beginning of this year is tied directly to the decline in value of the U.S. dollar. Any other explanations are simply not applicable.

Beyond that it is mostly a guessing game; at least in the very short-term. And for good reason. A plethora of faulty logic, (non)correlations, and contradictions seem to indicate more than just an ignorance of gold’s fundamental(s).

It just may be that the day-to-day changes in gold’s price are not easily attributable to known facts.

The gold market is relatively thinly traded. Even so, there are many different reasons why someone bought or sold the yellow metal on a certain day. Any specific transaction could have been initiated after weeks or months of deliberation.  And if it is spontaneously correlated time-wise with other known events, we still don’t know the reasons or logic that went into that decision.

Also, it is possible (likely?) that the traders who provide explanations to the journalists, are just as much in the dark themselves for an answer.

The only visible, consistently reliable, fundamental indicator of gold prices is the U.S. dollar. The ongoing decline in value of the U.S. dollar is reflected in an ever higher gold price over time.

Periods during which the U.S. dollar shows signs of strength and stability are reflected in lower or more stable gold prices.

Those periods are temporary. And they can last for years. The previous temporary period of U.S. dollar strength lasted for twenty years from 1980 – 2000. Don’t be swayed by the clarion call of impending riches or the fear of missing out on wealth untold.

If you really want to understand gold, focus on the U.S. dollar.  And ignore the headlines.

 

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!

Predicting The Price Of Gold Is A Fool’s Game

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PREDICTING THE PRICE OF GOLD

It is frustrating at times to see the attention focused on predictions for the price of gold. The more sensational and spectacular the price forecast, the greater the cacophony.

It is worth taking a look back at a few of these predictions to help put things in perspective.

HEADLINE: Gold Forecast $6000, And Gold Mining Analysis Through Visualisation  23Jan2012

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.”

Gold price on 23Jan2012:  $1679.00 per oz.

Gold price on 14Mar2014: $1382.00 per oz.

Gold price on 31Dec2014:  $1181.00 per 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, 2013.

The problem is not the plausibility of $6000.00 gold.  It is very plausible, and possible; maybe even likely.  However, the prediction was specifically time oriented and horrendously misjudged in terms of direction and timing.

All that is excusable.  Unless you are the proprietor of a subscription service and/or making investment recommendations to others, or dispensing trading advice.

HEADLINE: JPMorgan Forecasts Gold $1,800 By Mid 2013  01Feb2013

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; this time dropping twenty-six percent in five short months.

HEADLINE: Trump Win Signals $1,500 Gold… 10Nov2016

Quote: “A Trump US presidential victory signals US$1,500 an ounce for gold…in the intermediate term.”

Gold price on 10Nov2016: $1258.00 per oz.

Gold price on 31July2017:  $1268.00 per oz.

Apparently gold did not see the ‘signal’ since its current price is nearly identical to its price on the day the prediction appeared in print just after the elections last November.

And what does the writer mean by “intermediate term”?  The longer the time frame, the less value in the prediction. The projected dollar increase amounts to twenty percent.  If it takes two years, that amounts to roughly ten percent annually.  In that case – or if it takes longer than two years – is it worth the bold-face headline?

HEADLINE: Trump to Send Gold Price to $10,000 10Nov2016

Gold prices and dates are the same as in the above example. With gold  right where it was ten months ago, when might we expect some progress towards that price objective?

A price prediction of this magnitude deserves a more complete analysis and evaluation.  See $10,000 Gold May Be Reasonable; Or Wishful Thinking; Or Irrelevant .

The more outlandish price predictions usually center around a breakdown or collapse of the monetary system.  The breakdown occurs as a result of complete repudiation of the U.S. dollar after decades of value depreciation. People simply refuse to accept and hold U.S. dollars in exchange for their offered goods and services.

Now suppose at that time you own gold.  Would you sell it? At what price? For how many worthless U.S. dollars would you part with an ounce of gold?

If someone offered you one billion monopoly dollars for an ounce of gold today, would you take it? How about ten billion?

Okay, so what if we see a precipitous decline in the value of the U.S. dollar over the next several years?  Lets say that decline amounts to a loss in purchasing power for the dollar of fifty percent from current levels. This would equate to a gold price of approximately $2500.00 per ounce, a doubling from current levels.

This is valid if gold and the U.S. dollar are at equilibrium currently (I think they are). In other words, the current price of gold at $1250/60 is an accurate reflection of the cumulative decline in the value of the U.S. dollar since 1913.

The fifty percent decline in the purchasing power of the U.S. dollar would be reflected in higher prices for other goods and services; a pattern which has become all too familiar over the past one hundred years.

If there is a functioning market, and assuming you sell some gold and take profits, how much more will it cost for whatever else you might decide to buy?  Do you really think you will be able to buy other items of value at ‘discounted’ prices at that time?

Gold, in 1913, was $20.00 per ounce.  Currently it is $1260.00 per ounce.  That is an increase of more that sixty-fold. But it does not represent a profit.  Because the general price level of goods and services today – generally speaking – is sixty times higher than it was in 1913.

There are times when you can profit from sharp moves in gold in short-term situations. Generally, these are just before major movements in its U.S dollar price that reflect a realization of the cumulative decline in purchasing power of the dollar. And, to a lesser extent, recognizing when the expectations of others take the gold price well beyond equilibrium vs. the U.S dollar.

In 1999/2000 gold hit price lows of $250-275.00 per ounce. Soon thereafter it embarked on a decade long run culminating in a peak price of close to $1900.00 per ounce in 2011.

After its peak in 2011, gold declined over the next five years to a low of just above $1000.00 per ounce. A short-lived rebound in early 2016 brought it back to near current levels ($1200-1300.00) where it has generally remained without breaking either up or down to any 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 its too late!

One day, it WILL be too late. But it is more a matter of financial survival now than ever before. The obsession with profits, predicting and trading has obscured the real fundamentals.

And one way or another, most people’s profits are likely to go up in smoke before they do anything meaningful with them.

Gold – physical gold –  is real money. It is real money because it is a store of value. And its value is constant. The U.S. dollar’s value continues to decline over time. The constantly declining value of the U.S. dollar and people’s perception of it, as well as their expectations for it, determine the price of gold.

 

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!