How to Predict the Price of Gold

By: Jeff Clark | Fri, Dec 11, 2009
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Long-term readers know that gold moves inversely to the dollar, meaning if the dollar drops, gold tends to rise (and vice versa). This happens with about 80% regularity. But what many gold writers haven't acknowledged is the leveraged movement our favorite metal has demonstrated this year to the world's reserve currency.

The U.S. dollar index, a six-currency gauge of the greenback's value, has dropped 7.8% so far this year (as of December 3). Meanwhile, gold is up 38.7% year-to-date. In other words, for every 1% drop in the dollar index, gold has risen 4.9%. If that approximate percentage holds over time, one can begin to estimate what the gold price might be if you know what the dollar might do.

While the dollar is likely to bounce at some point, making gold correct, the long-term fate of the dollar has already dried in cement. If the dollar were simply to return to its March 2008 low of 71.30 next year - a 4.6% drop from current levels - this would imply a rise in gold of 22.5% and a price of about $1,478 an ounce.

The long-term scenario is more dramatic. If you believe the dollar will lose half its value from current levels, this would imply a gold price around $4,164. If you believe it will lose 75% of its value, gold would reach about $5,642. Doug Casey has called for a $5,000 gold price; if he's right, guess what that implies for the dollar?

And think about this: these calculations ignore what else might "show up," such as when price inflation shows up in the economy, the greater public shows up to buy gold, or the Chinese don't show up at an auction. Could $5,000 gold be too low?

Unless you think the dollar's problems are solved, its eventual demise is gold's eventual glory. Prepare, and invest, accordingly.

And keep up on the gold and precious metals markets in Casey's Gold and Resource Report. Each month I'll bring you the best research and investment recommendations in the business. And until December 18, you can get a subscription for 50% off the regular price and receive a free gift worth $79. Click here to learn more.

 


 

Jeff Clark

Author: Jeff Clark

Jeff Clark
Editor: Casey's Gold & Resource Report
Casey Research, LLC.

Jeff_Clark

Having worked on his family's gold claims in California and Arizona, as well as a mine in a place to remain nameless, Jeff's research and writing skills are utilized in his role as editor and one of the primary writers of Casey's Gold & Resource Report.

Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making Casey's Gold & Resource Report the best precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn't escape coverage.

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