Gold’s price has been rising for over a decade now. It’s a reliable hard asset, one that has intrinsic value and has been regarded as wealth for millennia.
Everyone who’s up-to-date with gold’s prices during the early 2000′s knows that gold has been in a bull market for about 12 years. It’s been rising with slight interruptions, modest corrections for over a decade and bullion dealers have only had to gain from this phenomenon.
Gold has become “trendier”. But how long will this continue?
Can you trust gold as a long-term investment?
Could gold’s price crash?
Yes – gold can crash. In fact, it’s highly likely that it will. There are multiple signs that this could occur, only that the vast majority of investors and gold experts won’t tell you that – because they have the interest to sell their services and promote their partners.
On the very long term gold will indeed rise, but there could be a strong correction during 2013-2014. The signs are obvious and PrimeValues.org will unveil them to you – right on this page!
There are forces propelling gold up and there are others pulling it back! Precious metal sellers usually tell you about the ones propelling the prices higher, on the opposite side are governments and various institutions interested in currencies bonds, etc. – they will talk negative about gold.
Prime Values has a neutral position. Listen to both sides and act independently!
Understand where gold goes and buy when it’s cheap!
Cheaper gold prices can mean another great opportunity for buying! Because on the long term, fiat currencies will eventually lose tremendous amounts of their value and you will only be safe enough if you own hard assets.
Let’s see the forces first and how gold will crash.
The Forces Propelling Gold Higher
Details will be omitted, you will find a plethora of articles on this site and many others on the web. You will always find more articles about why you should buy gold and how it will rise on the long term.
Just to enumerate the forces and factors that are giving a boost to gold prices: fiat currency devaluation/hyperinflation/money printing, the worsening global economic crisis, high demand for gold (both from individuals, companies and governments – the more they buy, the more it will cost), the loss of trust in paper-based values (currencies, bonds, certificates etc.).
A severe, 1930′s depression is unraveling in front of your eyes. Hyperinflation, civil unrest, severe poverty are just part of the problems that could occur.
Peter Schiff, Paul Krugman, Nouriel Roubini, Marc Faber and lots of other economists have been warning about such scenarios. It’s rather a question of time than a question of “if”. Owning hard assets is unquestionably a good thing.
The Forces Dragging Gold Down
Of course, there are factors that cheapen gold.
Money-printing makes it more expensive, so does any major negative US economic data (and not only US economy-related data). But: when the US dollar strengthens, gold loses value. This usually occurs for brief periods, while the overall price trend is on an upward slope.
This is what we’d like to analyze under this article.
Let’s see why gold could crash as early as this year – 2013 or, later in 2014.
1. Gold Has Lost Momentum
You don’t have to be able to interpret the charts. Simply observe the price of gold on Kitco.com and observe the “humps” during the 2011-2012 period. It vividly reflects that gold doesn’t have the same energy to rise.
The “humps” are abrupt bull runs followed by sharp corrections. Almost every time gold gained strength, it took a dip very soon.
In early 2013 it has been trading horizontally. This reflects uncertainty.
The energetic rise of price was characteristic to the 2001-2010 period especially. After that, sideways tradings and abrupt drops…
In 2011 and since then, gold has been falling back after strong bull runs quite sharply. It’s an undeniable fact. Observe the charts.
All these despite “Operation Twist” (also known as “QE 2.5″), despite “QE Infinity” (the 3rd round of quantitative easing), despite the severe weakening US economy, despite the nearing fiscal cliff-related issues, etc.
2. Gold Has Crashed Before, it Could Happen Again
Check the historical charts and observe the evolution of gold’s price. You will see waves: ups and downs.
After President Nixon took the US off the gold standard, the “king of all metals” gained tremendous value, only to crash roughly to half of the peak value in 1980!
Look at platinum’s crash in 2002. Observe how that metal went up to above 2,200 $ and crashed to slightly above 800 $!
Indeed: gold can crash, as it did before. As platinum dropped. They are not immune to value-loss either.
3. Failure to Reach Predicted Price Levels
Gold failed to reach the 2,000 $ per ounce limit. The long-predicted psychological level could not have been reached. Multiple predictions by prestigious investors and renowned financial institutions failed multiple times.
Gold could barely hold the 1,700 $ level in 2012, despite CitiBank’s prediction of 2,400 $.
In December 2012, gold prices dropped 1,680 $ and the “big bull run” in early 2013 didn’t happen until mid January (yet, at least).
Evidently, gold is failing to meet expectations.
Recently, Goldman Sachs predicts lower gold prices for the coming period (see the related Reuters article).
According to these and numerous other predictions, gold will only get past 1,800 $ (will stay below 1,900 $) during 2013-2014. We shouldn’t be too enthusiastic about that 2,000 $ level. It seems like some forces pulling gold down are getting stronger.
4. Deflationary Scenario to Weaken Gold Prices
During deflation, precious metal prices, as prices in general are lower. Gold could “take a dip”, if this happens. It’s not 100 % certain, but it’s way higher than 50 % – it’s more likely it will happen during deflation that not.
Marc Faber is one of many economists warning of a possible deflation in the United States.
The long-predicted hyperinflation might only occur after the “deflationary spiral”.
It is possible that gold will “take a vacation” for a while and will pick up later on.
5. Weaker or Crashing Euro Will Propel the Dollar, Which Will Drag Gold Down
The US dollar’s biggest rival’s demise will only strengthen the American currency. Its position as a reserve currency might briefly be strengthened. This will rather be an artificial financially-motivated gain of strength.
Despite the US economy not delivering good results, the fall of its biggest rival will have a positive effect on it.
Ordinary people, but especially forex speculators will rush into the US dollar from the euro.
The obvious conclusion will be cheaper gold. Other precious metals (especially silver, perhaps platinum might follow).
6. Experts Predicting Lower Gold Prices For 2013
Marc Faber (also known as “Dr. Doom”) has stated in a CNBC interview in December 2012 that gold’s price could even go below 1,500 $ per ounce this year. He also talked about the fact that gold is in a correction.
Similarly, Jim Rogers didn’t seem too optimistic either – underlining that it’s rather unusual for a commodity to rise for over a decade. Rogers expressed that he wouldn’t be surprised to see a correction.
According to this MarketWatch article, gold will fall roughly 500 $ an ounce to reach as low as 1,200 $ per ounce in 2013.
7. Gold Price Manipulation
Jim Sinclair (also known as “Mr.Gold”) believes that major financial institutions like Goldman Sachs are manipulating gold’s price down only to buy it up at a cheaper price for later re-sale at a higher price.
8. Paper on the Gold Market
ETFs and various other “paper certificates” that don’t have real precious metals behind them are behaving almost like fiat currency. They have no gold backing, but they act as if they had. So, their massive sales or lack of demand to buy them automatically induces lower prices for physical gold!
Let’s keep in mind: “what they trade out there” isn’t real physical gold, but rather “certificates of gold”. Physical gold becomes a victim of these speculations.
9. Automatic Stop-losses Ending Positions on Strong Dips
If gold turns bearish, there is a risk of “stop-loss detonation”: the lower gold’s price goes, the higher the likeliness of touching the stop-loss points set by investors.
Massive sale of gold futures – for example (one occurred in autumn 2012), can bring gold prices down only to trigger stop-losses. This is an automated domino-effect.
This danger is always there. But the gold market has been more often bearish during 2011-2012 than any time during the previous 10 years (2000-2010).
10. Psychological Factors, Weaker Investor Sentiment
Gold (as any other asset) is only good as long as people believe in it. Belief gives value.
Just like we believe in people, we believe in hard assets, similarly to fiat currency.
Perhaps the “belief” is one of the most powerful and very hard to measure factors that can move the prices of assets up and down.
Gold has lost from its prestige during 2012 and some bullion sellers actually reported lower sales. In mid 2012, gold prices dropped to 1,518 $/ounce and gold traded sideways until the 3rd round of quantitative easing was announced in September 2012.
If the investors lose confidence in gold, it drops. Loss of confidence will drag prices down, which will cause panic, fueling an even sharper decline.
Psychological factors play strong roles at certain times, but almost always act together with other (more rational) factors.