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« Best Wishes for the Christmas Break | Main | Canadian Gold Juniors Soar – Should You Buy Now? »
Thursday
Dec102009

How to Predict the Price of Gold

Gold Coins 11 Dec 09.JPG


Jeff Clark, Editor, Casey’s Gold & Resource Report

Long-term readers know that gold moves inversely to the dollar, meaning if the dollar drops, gold tends to rise (and vice versa). This happens with about 80% regularity. But what many gold writers haven’t acknowledged is the leveraged movement our favorite metal has demonstrated this year to the world’s reserve currency.

The U.S. dollar index, a six-currency gauge of the greenback’s value, has dropped 7.8% so far this year (as of December 3). Meanwhile, gold is up 38.7% year-to-date. In other words, for every 1% drop in the dollar index, gold has risen 4.9%. If that approximate percentage holds over time, one can begin to estimate what the gold price might be if you know what the dollar might do.

While the dollar is likely to bounce at some point, making gold correct, the long-term fate of the dollar has already dried in cement. If the dollar were simply to return to its March 2008 low of 71.30 next year – a 4.6% drop from current levels – this would imply a rise in gold of 22.5% and a price of about $1,478 an ounce.

The long-term scenario is more dramatic. If you believe the dollar will lose half its value from current levels, this would imply a gold price around $4,164. If you believe it will lose 75% of its value, gold would reach about $5,642. Doug Casey has called for a $5,000 gold price; if he’s right, guess what that implies for the dollar?

And think about this: these calculations ignore what else might “show up,” such as when price inflation shows up in the economy, the greater public shows up to buy gold, or the Chinese don’t show up at an auction. Could $5,000 gold be too low?

Unless you think the dollar’s problems are solved, its eventual demise is gold’s eventual glory. Prepare, and invest, accordingly.

And keep up on the gold and precious metals markets in Casey’s Gold and Resource Report. Each month I’ll bring you the best research and investment recommendations in the business. And until December 18, you can get a subscription for 50% off the regular price and receive a free gift worth $79. Click here to learn more.



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Reader Comments (4)

Some suggest that the inverse relationship between the US$ and gold may break down in the months/years to come. In other words, both the US$ and gold may rise simultaneously. Any thoughts, Bob?

The seasonality strategy appears to be quite reliable.

December 11, 2009 | Unregistered Commenterep

Sell your gold please!

http://www.uncommonwisdomdaily.com/sell-your-gold-please-7835

Yes, I want to buy gold stocks at a lower price too.

December 11, 2009 | Unregistered Commenterep

ep,

Agree it will break down but dont know when this will happen.

December 11, 2009 | Unregistered CommenterGold Prices

if you are able to predict it some sites have contests that are giving away free gold like http://www.goldalert.com/gold-price-contest.php?enter_now

December 18, 2009 | Unregistered Commenterjohn fard

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