Some analysts predict a downturn in gold prices during late 2016, but what are the indicators hinting at?
Traditional wisdom has long held that gold represents a solid investment for those who are risk-averse and want to invest in an option that has actual value, not just on a balance sheet, but intrinsically. The gold market has historically delivered reliable returns in the long run, but many investors are interested to see what the end of 2016 brings, especially considering the potential for market interruption due to global concerns like Brexit, political turmoil and unrest, and interest rates. According to an article in McClellan Financial Publications in May of this year, analysts predicted a major cycle low upcoming in gold.
McClellan’s analysts indicated several predictions for the gold market, a major cycle low in late 2016 or early 2017, an eight-year pattern for gold valuation movement that has held true since 1975, and a major uptick in the prices of gold following the bottoming of the market. Since this article was published several months ago, let’s take a look and see if the predictions and the realities of the market align today.
Major low in gold prices — Based on the New York closing price, gold has moved from about $1,210 per ounce in May of 2016 (when the article was written) to $1,340 per ounce as of week three of September 2016. Interestingly, gold did drop quite a bit in early June, but rebounded quickly and now seems to be on an upward trend. Though there is still the potential for a valuation drop toward the end of the year, gold is up almost 10% over the past six months. With recent Fed meetings indicating a stall in the increase of interest rates, gold may continue to climb on its way to nearly $1,400 per ounce.
Eight-year pattern — The McClellan article stands true to its assertion that gold follows an eight-year pattern, with prices showing a one leg up, three wave down pattern that has held true since 1975. Though there is some consistency to this position, gold prices should be looked at as an overall long-term position, instead of trying to time the market perfectly. Consider this: if you bought gold eight years ago, you’d have paid $869 per ounce. Ten years ago, though, you could acquire an ounce of gold for just $635 per ounce. Though there is some truth to the cyclic nature of gold, looking at it as a long-term hold is the best strategy. An ounce of gold today is priced five times higher than it was in 2001.
Major uptick in gold prices — Gold closed out at over $1,340 an ounce on September 23, 2016, and opened the year at about $1,060 an ounce. When looked at on a five-year chart, gold prices have dropped precipitously since the end of 2012, with a major rebound during the beginning of 2016. The price seems poised for a big uptick to match early 2012 pricing.
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