Tuesday , 25 June 2024

How Low – and How High – Could Gold Go?

Is gold undervalued or overvalued?…[Unfortunately,] there’s no good way – and golddefinitely no universally accepted way – to  determine a “fair value” for gold. Unlike a stock, gold doesn’t have a  price-to-earnings ratio that we can easily compare to the market. [That being said, I offer in this article] a logical, real-world price target.

So writes Louis Basenese (www.wallstreetdaily.com) in edited (and in some instances paraphrased) excerpts from his original article* entitled Gold’s Next Move: $800 or $6,000?.

[The following article is presented by  Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have 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.]

Basenese goes on to say in further edited/paraphrased excerpts:

The valuation problem stems from the fact that gold serves different purposes for different investors:

  • as a hedge against inflation, or against low real interest rates.
  • as a hedge against a currency crisis.
  • as an asset to own when every other  investor is saying “Oh, crap!” in response to a sudden collapse of the entire  financial system, or the onset of a nasty bout of hyperinflation.

A recent study published by the National Bureau of Economic Research finds that each of the motivations mentioned above only explains a small portion of the short-term price swings… [That doesn’t help us much in finding the answer to our question, though, as to whether gold is undervalued or overvalued? Therefore,] instead of providing you with a clearly defined and justified price target…[let’s try to] understand how low (and how high) gold could go. You’ll understand why in a  moment.

The Floor is Set

…[I’m of the opinion that] gold prices could go down to…$900 per ounce by year’s end, based on the most bearish prediction coming out of ABN Amro Group – an educated guess based on the most recent trading history. If we take into account a longer history –  say, 2,500 years – the bottom for gold could be as low as $800 per ounce, according to Duke University’s Campbell Harvey…

Time Horizon Matters

The fundamentals point to gold heading lower in the near future so, unless you’re looking to be a short-term trader, I’d avoid trying to play a bounce off  the recent lows….On  the other hand, if you’re a long-term investor, gold might be dramatically undervalued. Here’s why…

Gold At $6,000?

Below is a chart that shows the level of U.S. gold reserves for the last century or so…and the amount of national debt which has blasted off in recent years.

Now, I’m sure we can all agree that the number one concern facing global markets is  sovereign debt levels. The examples of Greece, Cyprus, Portugal and Spain (the list goes on) confirm that too much of something can, indeed, end badly. Accordingly, I’m convinced that the most compelling reason to own gold now is to protect against the U.S. government’s troubling debt levels…[As says] Will Rhind, Managing Director at ETF Securities LLC, “There’s still a very large debt situation with no credible solution. Until the countries put in a credible solution to [reduce] debt burdens, we will look to gold as a currency hedge against that risk” and that’s where the chart above comes in…

As  you can see [in the chart above], back in the 1920s, the U.S.  government was virtually debt free. Accordingly, the ratio of national debt to an ounce of gold stood at about 0-to-1.  At the end  of 2012, though, that ratio stood at $61,796 of debt per one ounce of gold owned by the U.S. government. [To suggest that] gold is worth upwards of $60,000 per ounce, however, is completely unreasonable. Given the fact that debt coverage stood at 10.9% at the outset of the Bretton Woods Agreement in 1944, however, does suggest that, were we to go with that as a rough benchmark, we’re talking about a gold price target north of $6,000 per ounce. Again, that’s based on the alleged amount of gold held by the U.S. Treasury. If it’s less, all bets are off. Trust in the central bank would evaporate immediately on any such revelations and, unlike paper money, we can’t mint gold reserves out of thin air to calm the market.

Bottom line:

While it’s always prudent to own some gold in your portfolio…[the reason for doing so] varies from one investor to the next.

  • If you’re  absolutely convinced that the U.S. government is on a crash course with a  default, I’d be loading up at these levels.
  • If, however, you’re after a  short-term profit, I’d look to be more opportunistic and wait for a pullback below $1,000 before adding to my positions.

Ahead of the tape,

Louis Basenese

[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.wallstreetdaily.com/2013/07/17/gold-prices-investing/  (© 2013 Wall Street Daily, LLC. All rights reserved.)

Related Articles:

1. United States Gold Bullion Depository: Fort Knox or Fort NOT?

Leave a comment

If you believe the government routinely lies or covers up its actions, we can’t simply laugh off the idea that there’s no gold in Fort Knox. Until an audit is done, the facts provide more questions than answers.  [This article explores the situation, implications and possible ramifications.] Words: 892 Read More »

2. Gold: Likely to Fall to $950 – $1100; Unlikely to Rise Above $2,000 – Here’s Why

Leave a comment

An analysis of  the ratio between the market capitalization of gold (MCG) and the gross world product (GWP) over the past 63 years suggests that the current price for gold has further to fall and that it would not be wise to begin buying gold until prices have fallen below at least $1100 or $950. Read More »

3. These 4 Indicators Say ” the immediate outlook doesn’t look good for gold”

Leave a comment

Below are the four most important factors that influence the price of gold indicators….If you understand and correctly interpret these four indicators, I guarantee you’ll make more intelligent buy/sell decisions. More importantly, you’ll make more profitable ones as well. Read More »

4. Noonan: Charts Suggest Potential Support for Gold Down at $1,040 to $1,100

Leave a comment

If you want to make rabbit stew, first, you have to catch the rabbit so hopefully, first, we’ll see some concrete signs that a bottom is in before the regurgitation of “Gold is going to $10,000!” starts showing up in a host of new articles pandering for attention. The best way is to decide for yourself…so let us go to the most reliable source, the market, and see what the prices of gold and silver  have to say about what everyone else has been saying about them.  People have been known to exaggerate, even lie in their “opinions,” but the market never does either. Read More »

An earlier article on gold & silver went viral with almost 30,000 reads on munKNEE.com alone and continues to be read by hundreds of goldbugs daily. Below is an updated chart and analysis suggesting that gold & silver have further to drop before they go parabolic. Take a look and share it with friends. Read More »

6. Gold to Plummet to $1,200 – $1,250 & Ultimately Drop to $1,000 – $1,100

So claims Greg Guenthner (http://dailyreckoning.com). He stated that once gold breached $1,350 it would plummet to $1,200 – $1.250. So far, so good, but will his $1,000 – $1,100 price for gold come true?

7. Nouriel Roubini: Gold to Be Gutted! Here’s Why


Roubini expects gold will fall below $1,000/oz, taking prices down to approximately 30% from current levels; a point not seen since 2007. Here’s why. Read More »

8. Gold Bugs: Look Out Below! Gold Could Drop to $1,000


Scott Grannis (http://scottgrannis.blogspot.ca) thinks gold could fall to $1000, or even less, as it realigns with other commodity prices.

9. Given the Selloff, Is Now a Good Time to Buy Gold?

Leave a comment

My answer is no. In fact, depending on their overall allocation, I believe investors should consider trimming their holdings. Here are 4 reasons why that is the case. Read More »

10. Nothing Has Changed So Gold May Yet Reach $3000/ozt

Leave a comment

While the US$3000 figure is wildly above most forecasts, which are mostly flat at the current level, UBS global commodity analyst Tom Price said these flat forecasts are based less on informed analysis than on the fact that “people just don’t know what’s going on.” Read More »

12. Governments Will Want – Will NEED – Much Higher Gold Prices! Here’s Why


That governments will want – and will NEED – much, much higher gold and silver prices in the future is counter intuitive, given that they have done everything within their power to throttle back and to keep a lid on bullion prices. Let me explain why. Words: 1300

13. The Case for a “Fair” Gold Price of $10,783/ozt

Leave a comment

What would happen to the market/spot price of gold if central banks around the world diverted their foreign currency reserves – almost $11 trillion’s worth – into gold. Using James Turk’s Gold Money Index the “fair” gold price would be $10,783/ozt. Read More »

14. “$10,000 Gold” Exclusive Excerpts from Nick Barisheff’s New Book

$10,000 Gold

$10,000 Gold offers a candid insight into the current state of the economy, the underlying causes of gold’s rising value and why the price of gold will continue climbing to $10,000/ounce and beyond in the years to come. The book contends that  intelligent investors have no choice but to invest in this precious  metal to stay safe no matter what lies ahead. Read More »

15. Nick Barisheff: $10,000 Gold is Coming! Here’s Why


This is not a typical bull market. Gold is not rising in value, but instead, currencies are losing purchasing power against gold and, therefore, gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow. Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if its correlation with the price of gold remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and [this] rising debt will cause the price of gold to rise to $10,000…over the next five years. (Let me explain further.] Words: 1767

16.  Past Bubble Movements Suggests a Parabolic Peak Price of $9,000 for Gold & $250 for Silver Is NOT Unreasonable – Take a Look

Bubbles tend to follow the 80/20 ratio indicated in the Pareto Principle where approximately 80% of the price move occurs in the LAST 20% of the time. That being the case it would appear that gold and silver could conceivably top out around $9,000 per troy ounce and $250/ozt respectively .This is not a prediction 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. Words: 1280; Charts: 1

17. Contracting Fibonacci Spiral Puts Gold Near $4,000 by 2013 and $7-10,000 by 2020

Gold is operating on a smaller Contracting Fibonacci Spiral Cycle that is in synch with the larger Contracting Fibonacci Spiral the markets are in. Adding together the sum of parts… the price of gold will move up in price in 2013, 2016, 2018, 2019 and 2020, with each subsequent leg moving less in percentage terms than the prior move. Gold advanced 4 foldish from 1999 until 2008 ($252/ounce to $1046/ounce) suggesting that gold should top out below $4000/troy ounce by the end of January, 2013…[on its way] to $7,000 and $10,000 per troy ounce by 2020. [Let me explain.] Words: 834

18. von Greyetz: Gold Going to $3,500-$5,000 in 12-18 Months – and $10,000 Within 3 Years!

There will be a catalyst coming soon, probably some concerted action of money printing between the Fed, IMF and the ECB. That will happen as a result of the economies, worldwide, collapsing….The catalyst could come from anywhere but the money printing will be part of the next move in gold, that’s for certain….[and it] will lead to collapsing currencies, and investors buying gold at any price…I see gold reaching $3,500 to $5,000 in the next 12 to 18 months. Within 3 years, I see the gold price reaching at least $10,000.

19. The “80-20 Rule” Suggests Gold Will Reach $8,300/ozt in Spring of 2015!

The “Pareto principle” – it’s often referred to as the “80-20 rule” – states that 80% of the effects of something come from just 20% of the causes (that is that 80% of people control 20% of the wealth, that 80% of sales come from 20% of your customers, etc.) and a new report by Erste Group, the Austrian investment bank, says this principle can be applied to bull markets as well, including the current bull market in gold, and following this line of thinking, you get an $8,300 price target for gold by the spring of 2015. Words: 285

20. Update: 51 Analysts Now Maintain that Gold is Going to $5,500 – $6,500/ozt. in 2015!

Lately analyst after analyst (161 at last count) has been climbing on board the golden wagon with prognostications as to what the parabolic peak price for gold will eventually be. That being said, however, only 51 have been bold enough to include the year in which they think their peak price estimate will occur and they are listed below. Take a look at who is projecting what, by when and why. Words: 644

One comment

  1. I think Silver will out preform Gold!

    We all have seen what happened to Gold and how it has been getting manipulated (using naked shorting) by the Central Banks which are using they’re freshly printed paper money to drive Gold prices downward, which is shifting Golds ownership to the same Central banks who are now able to buy Gold at bargain prices, instead of all the small and medium investors which have been scared into selling their “worthless” holdings “ploy”.

    This “trick” also serves to take peoples minds away from using Gold as a monetary standard, something that the same Central Banks do not want to do unless/until they control almost all of the Gold!

    Each day allows all these Central Banks to further increase their store of Gold using just paper, something that nobody else can do; which tells me that when the US$ stops becoming the World Standard, PM (Precious Metals) prices will zoom upward!

    If history has shown us anything it is that over time prices rebound and exceed what they were in the past!

    When the reversal happens it will be so fast that only the big investors will be able to get on board, which will probably be by design.