Gold Market Prediction – Revised

About 9 months ago, we posted a gold prediction (right after gold surpassed $1200 an ounce) that the gold run was possibly nearing an end because of a potential lack of buyers. Now (with gold recently hitting an record $1801 an ounce), we see that we were off by a 50% run up in price.

Our original analysis had suggested that retail buying of gold was difficult for most investors and that central banks would be soon unloading gold for a profit. Instead, now governments of countries are getting on the gold buying band wagon. For example it was announced that earlier this month, South Korea had added to its gold stocks for the first time in 10 years. South Korea, has one of the strongest technology production industries in the world. They are fiscally conservative. They’ve jumped on board.

But how far can this gold train go?

Analysts have been predicting $3000 an ounce gold prices for years.

As economies around the world continue to struggle (witness the recent credit downgrade of the U.S.), the perception that gold is a safe haven will continue to persist.

In the meantime, there is and will be a continuing growth of speculation and arbitrage in the gold market.

As always we recommend extensive due diligence before committing any serious funds to the market. Any financial market investment carries financial risk.

Gold Market Prediction

With the price of spot gold recently at all time highs, there are some forecasters that are calling for a top in the gold market and a major reversal in 2011. Gold prices have nearly doubled in 2 years.

Are we looking at the beginning of the top in the gold market?

Is the gold market bubble about to pop?

There seems to be a bit of euphoria in and around the gold market lately. Since the $1200 price was recently surpassed at least one “analyst” predicts a $3000 per ounce price within the next few years calling the the “macro economic environment” great for gold.

There seems to be one major oversight with this analysis.

As the “big” buyers a.k.a. the central banks have been “net buyers” of gold running up the price quickly, the lure of quick profits unloading the gold will be too tempting.

Since the big buyers have been buying gold they are basically the only ones that can afford it at these prices. Even jewelery demand for gold has slowed and come down even in the midst of these historic prices.

The bottom line is that a $3000 per ounce market for gold makes buying gold for most buyers impossible to afford and without buyers there is no support for higher prices.

In the near future we see central banks that have been storing gold to begin unloading reserves to lock in profit and converting to cash.

In any case, whether this prediction has any merit remains to be seen and played out in the markets, but eventually the lack of buyers who can afford to buy gold at higher prices will cause the price of gold to fall quickly and stabilize.

As always we recommend extensive due diligence before committing any serious funds to the market.