Thursday , 28 March 2024

2013 Gold Price Projection: $2250-$2550 By Q2 (+2K Views)

An objective and reasonable estimate for the price of gold at the next intermediate peak (estimating 2013 – Quarter 2) is $2250 to $2550 per ounce… This is not a prediction based on wishful thinking and hope, but a best estimate based on rational analysis of data back to 1975. The actual price for gold at its next peak could be higher or lower, and the peak might be earlier or later, but this price range and approximate time is, by this analysis, the most probable. Words: 1682

So says GE Christenson (www.deviantinvestor.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!)  has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Christenson goes on to say, in part:

Analysis

The actual analysis is complex…but if technical analysis is interesting to you, please continue reading.

The Gold:Silver Ratio

Until the last century, silver and gold had been money for thousands of years. During the long history of gold and silver, the price ratio of gold to silver has averaged, depending on analysis, around 15 to 20. Since 1975, it has been as low as 17 and as high as about 102. The ratio is low when silver is expensive compared to gold – which occurs at peaks in the price of gold and silver, such as in early 1980. Silver is a smaller market and much more volatile in price than gold, so the ratio can stretch one way or the other depending on the degree of speculative fervor in the market or the degree of price depression and disinterest in precious metals, such as in 1991. Extremes in the ratio usually occur at highs and lows in the prices of both metals.

The Silver:Gold Ratio

Instead of working with the gold to silver ratio, invert it and use the silver to gold ratio. That ratio peaks with price peaks in silver and bottoms with price bottoms in silver, and it usually coincides with price peaks and bottoms in gold. However, there is no simple answer as to what ratio is “high” or “low” since the ratio might be very different between the decade of the 1970s and the 1990s.

The Relative Strength Index

There is, however, a technical indicator called the Relative Strength Index that is normalized between 0 and 100. The RSI can be used with any time scale, such as 5 minute price data or 50 month data. The result is the same, a number between 0 and 100, with low numbers (such as 14) indicating a severely “oversold” condition and high numbers (such as 80) indicating a severely “overbought” condition.

For example, suppose silver (SI) has been rising for weeks, more rapidly than gold (GC), to a price of $40 while gold has risen to $1,600. The gold/silver ratio is 40 and the silver/gold ratio is 0.025. If we calculate the RSI of the SI/GC ratio using, say 21 weeks as the time period, the RSI formula might return a number of 78. This is a high number, particularly for a RSI of 21 weeks. This indicates that the SI/GC ratio is quite high and likely due for a fall, with silver falling much more rapidly than gold. Sounds easy, doesn’t it? The problem is that both gold and silver, while overbought, could rally further and become more overbought, and the RSI of the ratio might rise higher, say to 85, while the prices of both gold and silver jump even higher. If you had sold (when the RSI was 78), you missed some profit, and if you sold short, you incurred some losses. This is the dilemma of all traders: when to buy and when to sell. (Few people can buy at the lows and sell at the tops, so they need other tools to help time their trades.) I don’t know of any simple and fool-proof answer.

What I do know is that we can delve deeper into the above SI/GC ratio analysis and come to some high probability predictions that will give us a reasonable degree of safety and security in our quest to buy low and sell high.

  1. Run the same Relative Strength Analysis for the SI/GC ratio, but use a longer time scale – like 40 weeks. Further, average the 40 week RSI numbers over a centered 11 week period, using the current week’s number plus the 5 weeks both before and after the current week. The result is a smoothed RSI that is centered about the relevant week in the analysis. (Clearly, the last few weeks in the series are not using the future RSI values.) This removes much of the short-term “noise” – the weekly fluctuations that mean nothing in the long term.
  2. Calculate the 65 week simple moving average (add the prices for the last 65 weeks and divide by 65) of the actual gold prices. This produces a long-term trend for gold prices that has removed all but major fluctuations in price.
  3. Calculate the 7 week simple moving average of the actual gold prices. This gives a short-term average that is much more volatile than the 65 week moving average.
  4. Subtract the 65 week average from the 7 week average. Then divide by the 65 week average. This produces a percentage above or below the long-term trend of the 65 week moving average for gold. This is important because it measures a deviation from average in percentage terms, but not in actual gold prices, which have varied over the past 12 years from about $255 per ounce to $1923 per ounce. Further, it relates the percentage (over or under) to a long-term moving average, which accounts for both bear and bull markets in gold prices.
  5. Graph the 40 week (centered) RSI of the SI/GC ratio against the percentage that the 7 week moving average of prices is above or below the 65 week moving average of prices (percentage of price deviation or PPD). The graphs of both are similar as to direction, highs, and lows.
  6. Examine the graphs of both the RSI and the percentage of price deviation. You will find that major lows and highs in the RSI and percentage price deviation (PPD) occur roughly every 18-24 months, but the timing is not consistent enough that you would trade on these cycles. A chart since 1975 will not display well due to the amount of data. However, the following chart (data since 2005 is more manageable) shows the correlation between the RSI of the SI/GC ratio and the percentage of price deviation in gold.
  7. Further, you will see that peaks in the PPD occur between 45 and 60 weeks after their lows and that the PPD peaks rise to an average (since 1/1/2005) of about 27%. This means that the 7 week moving average, less the 65 week moving average of price, divided by the 65 week moving average of price, peaks around 27% – perhaps 20% some years and perhaps 33% other years.
  8. The bottoms in the RSI, after being smoothed so much, are always at or near (on a weekly scale) important bottoms in price, which occur approximately every 18-24 months.
  9. Finally, note that an important bottom in the RSI occurred in May 2012, and that it was the second most oversold bottom in the past 12 years.

Click on box below for chart.

 

 

Putting this all together, we conclude:

  • An important bottom in the smoothed RSI and the price of gold occurred in May 2012.
  • The next top is due 45 to 60 weeks later, say second quarter of 2013.
  • When the top occurs, the PPD is likely to be around 27%. The current 65 week moving average of gold prices is about $1650. Assume that the 65 week moving average in 2013Q2 will be about $1820. If the PPD is 27% above the 65 week moving average, then the 7 week moving average would be about $2300. But the actual gold price on a daily basis tends to peak about 5% above the 7 week moving average of prices. Add another 5% to $2300 and we produce an estimated price of $2400 per ounce for gold at its next intermediate peak roughly estimated to be during 2013Q2.

If we “bracket” this estimate, the calculations would show:

  • a low estimate of $1800 plus 20% plus 4% = about $2250
  • a high estimate of $1850 plus 30% plus 6% = about $2550
  • Hence, a price of $2250 to $2550 is reasonable for a most likely estimate of the next intermediate peak in gold.

Is this consistent with any other estimates? A graph of gold on a semi-log price chart shows an exponential rise for the past decade. A long-term trend channel that includes all but extremes in high prices passes through $2400 about the end of 2013Q2, with a chance of a 3% to 5% overshoot, as happened in 2006, 2008, and 2011. Hence, the trend channel indicates that even a peak price of $2550 is not unlikely.

What Could Go Wrong?

  1. Congress could choose to balance the budget, reduce spending by perhaps 40%, and throw the US economy into a deep depression. In that case, gold probably would fall, rather than rise further from its current price. (Not likely)
  2. A huge supply of gold might be located and brought to the market, driving prices lower. (Not likely)
  3. Commodity trading rules or regulations might be changed that could repress the price of gold. (Not likely)
  4. A financial crash that depresses all markets, including gold and silver, could make the next intermediate-term high both lower and later than expected. (Possible)
  5. Other currently unknown possibilities.

What is Likely to Occur?

  • Our economy will operate more or less as it has for the past several decades. Occasional crises will occur, and they will be managed, usually by creating more dollars to bail out banks, major corporations, the stock market, cities, states, pension funds, or whatever, as needed.
  • People will increasingly realize that more currency in circulation will create price inflation where our dollars will buy less and less. Eventually people will realize they need to trade their dollars for something of value that will protect their purchasing power from inflation. (Remember the 1970s.) Those choices could be gold, silver, diamonds, fine art, farm land, commodity ETFs, and many other possibilities.

Conclusion

Gold and silver will continue to rise, doubling every 3 – 5 years, until our government manages to tame the deficits, the borrowing, and the inevitable inflation….

*http://www.deviantinvestor.com/759/gold-price-projection-for-2013/

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

Related Articles:

1. Gold Price Expected to Peak in June 2013 – Here’s Why

The 21 month time frame for the next gold peak, the $30 trillion price tag for the debt, and the 64 month bull market fractal for money printing are all coming together squarely at the same date – June 2013. Words: 1350

2. David Nichols: Expect to See $2,750 – $3,000 Gold By June 2013 – Here’s Why

The interim peaks in gold have been spaced 21 months apart over the past 6 years and have seen gains from 80.2% to 97.3%. As such, given the fact that the low of this last correction came in at $1,524 four months ago, we can expect gold to reach a new peak price of $2,750 to $3,000 in 17 months time (i.e. June/July 2013). [Let me explain in more detail.] Words: 976

3.  Is Gold About to Go Parabolic to $3,495 in June ’13; $10,899 in Sept. ’14 and Top Out at $32,659 on Jan. 16, 2015?

According to a recent Elliott Wave theory analysis gold is about to go parabolic reaching $3,495 in June 2013, $6,233 in April 2014, $10,899 in Sept. 2014, $18,712 in December 2014 and culminating in a parabolic peak price of $31,672 on January 16th, 2015! See the chart below. Words: 600

4. 50+ Analysts Project Gold to Reach $5,000 – $6,000 by Late 2014 or Early 2015

More than 50 analysts 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: 600

5. Gold:Silver Ratio Suggests MUCH Higher Price of Silver in Next Few Years

The majority of analysts are now of the opinion that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 – 95% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold, silver could escalate dramatically in price over the next few years. How much? This article takes a look at historical gold:silver ratios and what attaining certain relationships would mean for the price of silver should specific price levels for gold be realized. Words: 691