The Price of Gold on December 30, 2011
By Jeff Clark
It's a pretty bold statement to predict what the price of gold will be on a certain date. Naturally, I don't think I can really tell the future, but here's what I can do: measure gold's seasonal behavior since the bull market started in 2001 and apply those trends to this year's price.
Many gold investors know that the price tends to be soft in the summer and then rise in the fall. While gold has powered to record highs this summer, I can demonstrate that in spite of this atypical pattern, $1,800 gold sometime this autumn is a very reasonable target.
Here's how: The following table records the summer low in the gold price in every year since 2001. I then list the peak that occurred later that fall, as well as the year-end price. Check out the percentage gains.
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Gold's Advances From Summer Lows
Year Summer Low* Date Fall High** Date Gain Year-End Price*** Gain
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2001 265.10 6-Jul 293.25 17-Sep 10.6% 276.50 4.3%
2002 302.25 1-Aug 349.30 27-Dec 15.6% 347.20 14.9%
2003 342.50 17-Jun 416.25 31-Dec 21.5% 416.25 21.5%
2004 384.85 11-Jun 454.20 2-Dec 18.0% 435.60 13.2%
2005 415.35 1-Jun 536.50 12-Dec 29.2% 513.00 23.5%
2006 567.00 20- Jun 648.75 1-Dec 14.4% 632.00 11.5%
2007 642.10 27-Jun 841.10 8-Nov 31.0% 833.75 29.8%
2008 786.50 15-Aug 905.00 29-Sep 15.1% 869.75 10.6%
2009 908.50 13-Jul 1212.50 2-Dec 33.5% 1087.50 19.7%
2010 1203.50 4-Jun 1421.00 9-Nov 18.1% 1405.50 16.8%
2011 1483.00? 1-Jul
Average 20.7% 16.6%
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*June, July, or August
.**Sept, Oct, Nov, or Dec
.***December 31 or last trading day
All prices based on London PM Fix
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There are some other compelling facts about this table. First, the fall high in the gold price occurred in December 60% of the time, and in November or December 80% of the time. Second, based strictly on past price behavior, there's a 60% chance our July 1 low of $1,483 is the low for the summer.
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 this fall, probably in November or December. And the price of gold on December 30 (the last trading day of the year) would be $1,729.
In fact, given that there's no end in sight to the sovereign debt issues here and abroad (regardless of the resolution to the U.S. 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 and $1,925, respectively. That may look like an aggressive move from here, but consider that those levels are still far below any inflation-adjusted price from the 1980 peak. Even the smallest climb, 10.6%, would leave us at $1,640, meaning current levels aren't the high for the year.
Here's the same data for silver:
Silver's Advances From Summer Lows
Year Summer Low* Date Fall High** Date Gain Year-End Price*** Gain(Loss)
2001 4.14 7-Aug 4.645 5-Oct 12.2% 4.52 9.2%
2002 4.42 22-Aug 4.7425 13-Dec 7.3% 4.665 5.5%
2003 4.48 5-Jun 5.965 31-Dec 33.1% 5.965 33.1%
2004 5.63 15-Jun 8.04 2-Dec 42.8% 6.815 21.0%
2005 6.885 6-Jul 9.225 12-Dec 34.0% 8.83 28.2%
2006 9.72 14-Jun 14.05 4-Dec 44.5% 12.9 32.7%
2007 11.67 21-Aug 15.82 7-Nov 35.6% 14.76 26.5%
2008 12.82 15-Aug 13.58 1-Sep 5.9% 10.79 -15.8%
2009 12.47 13-Jul 19.18 2-Dec 53.8% 16.99 36.2%
2010 17.36 7-Jun 30.7 30-Dec 76.8% 30.63 76.4%
2011 33.85? 1-Jul
Average 34.6% 25.3%
*June,July, or August
**Sept, Oct, Nov, or Dec
***December 31 or last trading day
All prices based on London PM Fix
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You can see that, as expected, silver is more volatile. Yet, other than 2008, the general trend still holds. The metal recorded higher prices every fall, and those highs occurred in November or December 80% of the time.
If silver were to match its 34.6% average autumn rise, we'd hit $45.56 sometime this fall (assuming the July 1 low of $33.85 holds), and end the year at $42.41. However, given that we've already exceeded these prices this year, and that silver is increasingly being used as a monetary metal, I think we'll see higher levels. A 50% rise would take us to $50.77, and matching last year's biggest jump of 76.8% would get us to within a few pennies of $60. Either way, assuming no major reversal, $40 silver shouldn't be the high for the year.
But these are just numbers. In the big picture, I believe gold and silver must move higher. Fiat currencies - especially the euro and U.S. dollar - haven't seen the full impact of their devaluation. The debt-and-deficit dilemma plaguing many countries can't be rectified overnight. In my view, there's a long way up for precious metals for the simple reason that there's a long way down for most currencies.
Regardless of where the prices of gold and silver end up later this year, I suggest denominating your savings in the time-tested assets that will preserve your purchasing power. The gains in these charts mean nothing if you don't actually buy some gold and silver to protect your assets.You can see this pattern has registered a healthy - and in some cases spectacular - gain every year. Even in the waterfall selloff of 2008, gold managed to climb higher from its summer low.
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