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What will be the price of gold on Dec 31?

Friday, 5 August 2011 - 9:30am IST | Place: Mumbai | Agency: dna

A report by Deutsche Bank points out that gold price has now increased for 124 consecutive months.

As I write this, the price of gold is hovering around $1670 per ounce (1 troy ounce equals 31.1 grams) and getting ready to cross $1700 per ounce.

A report by Deutsche Bank points out that gold price has now increased for 124 consecutive months.

The rally has entered its 11th year and has been three times longer than the other historical rallies in the prices of gold. If the price of gold were to touch $2100 per ounce, it would represent the most powerful percentage increase in history, Deutsche Bank points out.

But what will be the price of gold on December 31, 2011, is a question we all want an answer for. As they say, ‘it’s hard to make predictions - especially about the future’ (most famously attributed to American baseball coach Yogi Berra, but also to the physicist Niels Bohr, writer Mark Twain and Hollywood film producer Samuel Goldwyn).

Despite the “risk” of being all wrong, let me make a guesstimate. Take a look at the accompanying table brought out by Jeff Clark of Casey Research, one of the premier precious metal analysts in the world. In every year since 2001, gold has gone higher from the lowest price it hit in the months of June, July and August, by the end of the year.

The average gain in price of gold between the lowest price in the months of June, July and August and the highest price it touched in the remaining months of the year has been 20.7%.

Like in 2010, gold touched a low of $1203.5 per ounce on June 4, 2010. After that it achieved a high of $1421 per ounce on November 9, 2010, gaining 18.1% in the process.

“From this, we can make some projections. If gold were to match the average 20.7% rise from our July 1 low (assuming that low holds), we would hit $1,790 per ounce this fall, probably in November or December,” writes Clark. Given this, we can safely say that there is still some upside remaining on the current rally.

Also, we can see from the accompanying table that gold prices have peaked normally in November or December.
The average gains between the lowest price of gold in June, July and August and the price at the end of the year has been 16.6% over the last 10 years. “The price of gold on December 30 (the last trading day of the year) would be $1,729,”explains Casey.

Also, Casey bets that this year the average gains are likely to be exceeded. “In fact, given that there’s no end in sight to the sovereign debt issues here and abroad (regardless of the resolution to the US debt talks), I’d bet the average gains are exceeded. If gold matches the greatest fall and year-end increases, we’d see $1,980 per ounce and $1,925 per ounce, respectively,” he explains. This would mean a gain of nearly 19% from the current price of gold.

So the moral of the story is that in the near future the price of gold will continue to go up.

What is very interesting is that
the current rally in gold is not limited only to the US dollar. Gold has gained in value across most currencies. “It shows that markets and currency markets in particular are concerned about slowing economic growth, growing inflation pressures and continuing currency debasement,” a report by Gold Core points out.

In the last one month gold has gained 10% in US dollar terms, 11.3% in euro terms, 7.9% in terms of British pound, 10% in terms of the Australian dollar and 10.1% in terms of rupee. The gains in terms of Japanese yen are a little lower at 4.4%. But the gains today in terms of the Japanese yen are at 3.1%, which probably means that the gold rally in terms of the Japanese yen is just starting.

From the looks of it, the current broad based gold rally is likely to continue.

(The writer can be reached at chandniburman@yahoo.com)

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