Gold Model Projects Prices From 1971 - 2021

By: GE Christenson | Thu, Sep 4, 2014
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Gold persistently rallied from 2001 to August 2011. Since then it has fallen rather hard, down nearly 40% at one point, but it currently looks ready to rally for the balance of this decade.


Why Should We Expect That Gold Will Rally?

The answer, in my opinion, can be found in my gold pricing model that has accurately replicated AVERAGE gold prices after the noise of politics, news, high frequency trading, and day to day "management" have been removed by smoothing.


Why Do We Need A Gold Pricing Model?

Most of us do not know if a current market price is "low," about right, or "high." A few of the difficulties are:

My empirical model accurately calculated all major trends in smoothed gold prices since 1971 based on several macro-economic variables. This model is, I believe, a good tool for projecting future prices.


Model Results:

  1. The calculated Equilibrium Gold Price (EGP) had a statistical correlation of 0.98 with the smoothed gold price from 1971 - 2013.
  2. The model was both simple and robust. It worked effectively, on average, during gold bull and bear markets, stock bull and bear markets, blow-off tops and crashes, volatile oil prices, Y2K and 9-11, QE, Operation Twist, ZIRP, various hot and cold wars, occasional peace, gold leasing, gold manipulations, and high frequency trading distortions in many markets.
  3. In August of 2011 gold was priced about 30% ABOVE the EGP.
  4. In contrast, the December of 2013 gold price was about 26% BELOW the EGP.

Smoothed Gold Prices and Calculated Gold Prices
Larger Image - Smoothed Gold Prices and Calculated Gold Prices

Graph Notes:

  1. Smoothed gold prices (smoothed with two moving averages) are shown in a "gold" color. This is a long-term valuation model, not a trading model.
  2. Calculated equilibrium gold prices (EGP) are shown in green.
  3. The long-term trend from 1971 - 1981 was up, from 1981 - 2001 the trend was down, and from 2001 to 2012 the trend was up. (Actual gold market high price was August 2011.)
  4. Nixon closed the "gold window" in 1971, removed any semblance of gold backing for the dollar, and thereby enabled the creation of significantly more dollars into circulation. The various measures of "money" supply, official national debt, Dow Index, price of gold, many commodities, and most other prices increased exponentially between 1971 and 2013.


Future Prices for Gold
per the EGP Model

Assumptions:

Given the above assumptions, 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 are likely to see a spike high above $3,500 in 2016-2018. Extraordinary events such as a global war, dollar melt-down, or an economic crash and the resultant massive increase in QE from global central banks could push gold prices higher and sooner.

 


My book ("Gold Value and Gold Prices From 1971 - 2021") describes my gold price projection model in detail, and discusses many other topics such as QE, counter-party risk, gold cycles, price projections from other writers, price bubbles, ratios to the Dow and silver, and when to sell gold. My book is now available at my retail siteand at Amazon in paperbackand eBook.

Other Reading:

Gold Silver Worlds Jim Rickards: Target Gold Price
Casey Research 23 Reasons to Be Bullish on Gold
Eric Sprott Do Western Central Banks Have Any Gold Left?

 


 

GE Christenson

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

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