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What will the future top prices for physical gold and silver be? Naturally, no one knows for sure but many
analysts have developed interesting models and scenarios as to what the future holds and this article reviews 3 such analyses for your consideration.
The following analyses are heavily edited and paraphrased excerpts from the articles (linked below) of GE Christenson (DeviantInvestor.com) for your review and consideration. Check out his site for more details.
[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Christenson goes on to say in edited/paraphrased excerpts from his 3 articles:
1. The Hi-Lo Gold Model
The following chart shows monthly prices for gold since 2000:
This table shows the price and approximate number of years.
The price of gold bottomed in 2001, rallied for 3.0 years, fell for 1.1 years, rallied for 2.8 years, fell for 0.6 years, rallied for 2.8 years, and fell for 2.4 years. Lows were about 4 years apart, highs were about 3.5 years apart, and the rallies lasted, on average, about 3 years. Gold in December of 2013 had dropped to the lower logarithmic trend line after falling for 2.4 years. The patterns suggest that the next move should be a rally that lasts approximately 3 years to new highs near the top of the trend channel well above $3,500. (Source: *Gold: 14 Years and Three Patterns)
2. The Gold Equilibrium Model
I have developed a Gold Equilibrium Model based on three variables which calculates the equilibrium gold price with no reference to oscillators or technical indicators. It produced an excellent statistical correlation of 0.98 with the smoothed price of gold over the 42 years from 1971 – 2013. See graph below of results.
Click on image to enlarge.
The GEM is intended to replicate the smoothed annual prices for gold, filtering out most of the market noise and, as such, not predict actual weekly and monthly gold market prices. That being said, and for what it is worth, from an analysis of the data gold:
- was priced about 30% ABOVE the EGP in August of 2011
- was priced about 26% BELOW the EGP in December of 2013 and
- should achieve a price of $1,580 by the end of March of 2014.
Gold prices, based on this long-term model, are currently low and are likely to move much higher over the next several years….
Given the following assumptions that:
- Macro-economic variables continue to increase and decrease as they have for the past 42 years.
- The U.S. economy continues along its typical, but weakened, path with government expenses growing more rapidly than revenues, as they have for decades. National debt rises inevitably.
- Congress continues its multi-decade habit of borrowing and spending, talking about change, and changing little…
- Monetary, political, and fiscal policies will NOT be materially different from what they have been during the past 42 years.
- The U.S. will NOT be subjected to global nuclear war, Weimar hyperinflation, or an economic collapse, while we will continue to be subjected to the same Keynesian economic nonsense that has created many of our current “challenges.”
a reasonable projection for the EGP (a “fair” price for gold) in 2017 is $2,400 – $2,900. Remembering that market prices can spike significantly above or crash below the EGP for many months, we could see a spike high above $3,500 or $4,000 in 2017. Extraordinary events such as a global war or dollar melt-down could push prices higher and sooner. (Source: **This Gold Model Calculates Prices Between 1971 & 2017)
3. Bubbles & the 80/20 Rule
What could happen if gold and silver rise into another speculative bubble? To arrive at the answer I analyzed the time and price data for:
- the South Sea Bubble in England from 1719 -1720,
- the silver bubble from August 1971 to January 1980,
- the NASDAQ bubble from August 1982 to March 2000,
- the Japanese Real Estate bubble from 1965 to 1991,
- the gold bubble from August 1971 to January 1980, and
- the S&P mini-bubble from August 1982 to March of 2000.
I determined that all bubbles start slowly and then accelerate to unsustainable highs (on large volume) that are largely created by greed and fear but not fundamental evaluations. Such bubbles generally follow the “Pareto Principle” where approximately 80% of the price move occurs in the LAST 20% of the time:
- Phase 1 takes approximately 70-80% of the time and covers approximately 10-20% of the total price change.
- Phase 2 accelerates so that it takes only 20-30% of the time but covers 80-90% of the price change. (Extreme bubbles such as the South Sea Bubble and the Silver bubble experience approximately 90% of the price change in the 2nd phase.)
- The ratio of the phase 2 ending price to beginning price is typically 4 to 8 – a huge price move. Such bubbles are rare; the subsequent crash is usually devastating.
Some definitions are in order:
- A ‘bubble” is defined as a speculative mania in a market that is priced well beyond what the fundamentals and intrinsic value indicate.
- Phase 1 of a bubble begins with the price bottoming and initiating a long rally which hits a new “all-time” high.
- Phase 2 of a bubble starts when the price exceeds the “new high” and then rallies to a much higher and unsustainable level.
In the opinion of many analysts, including myself:
- sovereign debt is an ongoing bubble that could burst with world-wide consequences.
- Should deficit spending and bond monetization (Quantitative Easing) accelerate in the next several years, as seems likely, sovereign debt bubble will inflate further.
- Because of the massive printing of dollars, the value of the dollar must fall, particularly against commodities such as oil, gold, and silver.
- As the purchasing power of the dollar falls an increasing number of people will realize their dollars are losing value, and those people will seek safety for their savings and retirement by buying old and silver in an increasingly desperate search for safety.
Assuming the 80/20 “rule” and the phase 2 price change ratio of approximately 5,
- if we assume that phase 1 for silver was a move from $4 to $50 and that represents 19% of the total move, the high for silver could be around $250. The ratio of phase 2 ending price to beginning price would be 5:1 – reasonable.
- a phase 2 bubble price for gold could be around $9,000 per ounce. The ratio of phase 2 ending price to beginning price would be 4.7:1 at $9,000.
The above are not predictions of future prices of gold and silver; it is an indication of what could happen in a speculative bubble environment based on the history of previous bubbles. Past bubbles have had an ending price 4 – 8 times higher than the phase 2 beginning price, so history has shown that such prices for gold and silver are indeed possible. Possible is not the same as certain – but these bubble price indications are certainly worth your consideration. (Source: ***Past & Future Speculative Bubbles – What They Indicate for Gold and Silver!)
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.deviantinvestor.com/5573/5573/ (Deviant Investor; Copyright © 2014 – All Rights Reserved; **http://www.deviantinvestor.com/5545/5545/ Deviant Investor Copyright © 2014 – All Rights Reserved; ***http://www.deviantinvestor.com/2388/past-future-speculative-bubbles-what-they-indicate-for-gold-and-silver/ (Deviant Investor Copyright © 2014 – All Rights Reserved)
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