I see gold hitting $1,400 before long – but where to after that?

Three or four weeks ago, when gold was in the high $1,300s, I argued it was going to give back $100 of the $200 rise it had so far enjoyed in 2014, and go below $1,300 an ounce.

$1,275 was the suggested target. I said we’d get there by June.

$1,277 was the low last week. Not quite a bullseye – we’ll call it ‘an outer bull’.

So today I’m asking: “what next for gold?”

Why I reckon gold will hit $1,425 before too long

As far as gold goes, I would describe myself as cautiously optimistic.

Let’s not beat about the bush. I now have a target of $1,425 an ounce and I’m hoping to see it by May. My stop is just below $1,275. If I’m wrong, I stand to lose about 30 bucks.

Several factors have led me to this target.

First, gold seems to be having one of those years where it follows the seasonal patterns. That is, a strong January with a small sell-off towards the end of the month. Then a strong February with a peak towards the end of the month, followed by a nasty March.

If this is the case, then we should see a strong April and May, before another sell-off at the end of May and into June.

If we’re about to have a strong April and May (and the signs so far are good), then last week’s March low of $1,277 should hold. That means we will have put in a higher low than the $1,180 that began the year.

Interpreting this as a small uptrend forming, I’d pitch for a higher high than the February peak of $1,392.

Which leads me to the next big level of resistance at $1,425.

However, if $1,275 doesn’t hold, then my interpretation that we’re seeing a small uptrend forming is wrong.

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You’ll notice I’m taking a much shorter-term view of gold at the moment. There is a reason for this. If you asked me where gold is going to be in a couple of years, I’d find it hard to have give you strong opinion.

Without wishing to sound trite, there are so many contributing factors to the gold price that seem to be in a state of indecision. Has the US stock market peaked, or is it just catching its breath? What about the bond market – will interest rates rise, as everybody says they will – or will they fall, as they actually have done this year?  What about the dollar? It’s right in the middle of the trading range – is it going to break up or down? And the pound – is $1.67 the high, or just a temporary barrier on its way towards $2.00?

Inflation has found its way into the London housing market, as well as into financial assets. Will that inflation stay contained – or will it spread? What about next year’s general election – which way is that going?

These are all, at least in my mind, unresolved questions, which will affect British buyers of gold in some way. Even gold itself seems undecided. Are we at the start of another bull market? Are we still in a bear market? Or just meandering about on the way to nowhere?

Gold isn’t going to $2,000 this year – but I don’t see it falling below $1,000

In gold’s 1971-80 bull market, gold rose from $35 an ounce in 1971 to $200 in 1975, fell 50% back to $100, and then marched up to $850 by 1980. The gold owner in me wants to interpret the last two years as gold’s ‘75-‘76 moment. But the cynic in me won’t believe it until we see it.

I was at the (terrific) UK Investor Show last weekend, discussing the outlook for gold with various bods from the sector. Some of the panellists were excellent, I thought  – Amanda van Dyke of Women in Mining, in particular.

But another was proclaiming gold bug guff that was so generic and regurgitated that, when he declared that we will see $2,000 gold by the end of the year, my first instinct was to take the opposite stance and say gold will fall through a thousand.

Barring some extraordinary event, like some genuine numbers from China about their gold reserves, gold will not go anywhere near $2,000 this year. I’d be surprised, albeit nicely, to see it even reach $1,500. ($1,475 is my target high for the year).

However, I doubt it will fall through $1,000 either. And if it can start gently rising here, put in a series of higher lows and higher highs over the next few months, then a strong base will have been built. In the meantime, clearer trends will be becoming apparent in all those other markets I mentioned above.

I’m hoping that over the next few months we’ll have a better idea if governments and central banks really did save the economy – or if all they did was kick cans down the road. That’s a question that will determine gold’s direction and how much of it to own.

Gold’s shorter-term gyrations will give a clue as to what that answer will be. I guess, subconsciously, that’s why I am following those gyrations so closely.

• Dominic Frisby is crowd-funding his latest book, Bitcoin – the Future of Money. His first book, Life After The State, is available at Amazon. An audiobook version is available here.

• Follow @dominicfrisby on Twitter.

• This article is taken from our free daily investment email, Money Morning. Sign up to Money Morning here.

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  • crickster

    Dominic, you have been consistantly wrong on Gold, telling everyone to buy when they should of been selling, there are serveral people who took your advice on Gold and lost a lot of money, so excuse me if I take your opinion with the smallest pinch of salt !!

    • jimtaylor

      Don’t take advice from journalists.


  • Arkiruthis

    “But another was proclaiming gold bug guff that was so generic and regurgitated that, when he declared that we will see $2,000 gold by the end of the year, my first instinct was to take the opposite stance and say gold will fall through a thousand.”

    That’s the “King World News Cult” for you. “I predict $2,000 by June!”, “Gold to hit $4000 by Autumn!”. And when it doesn’t, it’s clearly the Illuminati manipulating COMEX markets.

    “Manipulators, Federalists and Masons! Oh My!”

  • Chester

    History tells us that credit bubbles always end in a deflationary bust. We have inflated the biggest bubble in human history, and central bankers everywhere continue to add more debt to a chronic debt issue. No structural problems have been addressed by injecting liquidity – they have simply become bigger as equity prices have “recovered”

    Deflation is the force driving the next phase of western credit contraction – irrespective of what idiot central bankers do. We have gone beyond the point of “peak” debt, and western demographic fundamentals (which should underpin any sustainable recovery) look awful for the next 15 years

    Gold has traditionally risen on inflation fears, not deflation. Whilst it may not sink below $1000 this year, it’s rendevous with $400 should not be far behind. Deflationary deleveraging first needs to fully unwind past stupidity. When that triggers another round of central bank selling, it will be a perfect opportunity for strong hands to buy – as a sensible hedge against the next wave of inflation

  • Pinkers Post

    It may be interesting to note that Gold has been a bit of an unruly child recently, completely ignoring hitherto reliable indicators such as inflation (QE!), political turmoil etc. This new, rather random ‘behaviour’, appears to have coincided with the rise of Exchange Traded Funds (EFT) that have introduced more flexibility and ease of trading and hence facilitating more speculative trading. This appears to have eroded its traditional role as a trusted hedge and insurance policy. It is a myth to believe gold is a constant store of value. Like anything else the price of gold is created by supply and demand.

  • dialucrii

    @Chester – you fail to notice that these busts often come after huge levels of inflation.

    Do you really believe for a second that the world’s central banks will allow deflation to take hold before they have counterfeited so much currency that inflation is a foregone conclusion? You’re living on a different planet if you think we will see deflation before inflation and not the other way around. The world’s government are in so much debt, deflation is not an option, however much of an eventual certainty it might be.

    • Chester

      The “huge levels of inflation” have compounded every year since fiat credit money was set free from gold in the early 70’s – the point is that we have already had it. 2008 saw the first stage of a credit bust, which central bankers have tried to re-inflate

      Despite unprecedented liquidity, almost every asset class with the notable exception of US & UK equities remain below their peaks. $30 trillion of additional debt has not stopped deflation, only protacted it. Deflation is only just getting started. And all this, despite central bank efforts – on planet earth. They do not control markets, but are meddlers behind the curve, as we will see in this next phase of the deflationary bust

      Deflation first – then more inflation, probably of the “hyper” variety

      • dialucrii

        @ Chester – the printing of money by definition IS inflation. That this inflation has not yet manifested in higher consumer prices (well it has actually but the government prefers to use calculations that hide this) is simply down to the low velocity of money in the economy at present. This has meant that while asset prices have risen tremendously (except precious metals) that money not yet found its way into the rest of the economy. It will find its way there eventually and by the time it does, there will have been a great deal more printing (the FED will stop and then reverse tapering, the EU is about to fie up their printers) and a great deal more money on top of what we have already. It is this low velocity of money that has created the illusion of deflation being allowed to take hold, as it must eventually, but in their efforts to avoid deflation as long as possible, governments are and will continue to guarantee that what we will see first is an inflationary depression.

  • dialucrii

    .. and as for gold’s performance during deflation, I think you’ll find that it does rather well in real terms.

    @Arkiruthus – The KWN crowd may have a penchant for hyperbole but it doesn’t mean they are wrong on gold manipulation and it’s future price prospects. Gold is THE single most important market for western central banks to be manipulating right now and anyone who believes otherwise is either a mug or misinformed. You probably thought the same thing about LIBOR, ISDAfix, Energy markets, FOREX….. you get the point.

    I do love these people who believe that anyone telling them something that’s not in the mainstream news is an idiot/conspiracy theorist. Such a beautiful irony that they believe THEY are the realists, but thanks nonetheless for the cheap gold.

    • Arkiruthis

      “I do love these people who believe that anyone telling them something that’s not in the mainstream news is an idiot/conspiracy theorist.”

      Your homework: Read up on “Straw man” fallacy. I did not mention mainstream media anywhere.

  • Ellen12

    The dollar is under threat as the world’s reserve currency because of the lazy economics of the fed and the US government, defaulting through unconventional monetary policy. What surprises me is why some think the gold price is not being manipulated as it, more than any other asset class, illustrates the real damage done to fiat currency by ZIRP and QE. It should not be a surprise there are increasing numbers of countries looking to dispense with the need to use the dollar as a reserve world currency and this should worry the fed. A large part of why the dollar is the reserve currency at all is because they held onto the gold standard when others abandoned it.

  • dialucrii

    @ Ellen – You are precisely right, the writing is on the wall for the fed as month by month the world’s countries agree to deal in currencies outwith the dollar. It really is only a matter of time before the dollar collapses. The US is completely aware of this but entirely helpless and all it can do is postpone the dollar’s demise as long as it possibly can, perhaps until it can find itself an appropriate scapegoat. (The tried and tested option would be war but let’s hope it doesn’t come to that).

    So if people are wondering where to invest, do they put your faith in the drowning man that is the US and western economies and the unsustainable asset bubbles created by their endless supply of unbacked fiat currency? Or do they follow the smart money that is Russia and China and pile into real assets that can’t be printed like precious metals? I know which horse I’d rather back.

  • Boris MacDonut

    Entertaining as Dom’s specualtions are ,they are nowundermined by the woeful predictions of his past.
    Just one year ago Dom predicted £1600, that is $2,650 for Gold by the end of 2014. Two months after that he predicted $1060 for the end of 2013. Neither scenario has ,or is likely to transpire. Gold is still down 24% in a year and needs to rise by $400 just to get back to where it was a year ago. There is far too much of the Derrne Brown about Dom.

    • dialucrii

      @Boris – I agree entirely, it is a waste of time trying to predict the direction of the gold price over anything other than the long term. Predicting price movement in a free market is difficult enough, but know which direction the price will move in the short-medium term in a manipulated market is impossible unless you are the entity/entities doing the manipulating.

      It only becomes slightly more doable in the longer time as the likelihood of an end to the manipulation increases and true price discovery os more often allowed to take place in the market.

      What Dom has not yet grasped, or for fear of losing credibility (if he has any left to lose) refuses to acknowledge, is that the question is not which direction will the gold price go and when, but when will gold price manipulation end ( most likely through a default in the LBMA/Comex markets as they run out of physical for delivery) and thereby allow gold be allowed to establish a free market price based on supply and demand for the physical metal. Only then will his musings have any relevance whatsoever.

  • Borderer

    I do wish I could be paid in my profession to tell my clients: it might be this, or it could be the other, but actually, I have no idea.

    What a totally meaningless article!

  • Rabster

    I think the article should have been entitled “What next for gold? Toss a coin!”.

    If Dominic had any idea about gold he would have long retired and not be scratching a living writing articles and raising funds for his book writing.

  • dialucrii

    @Arkiruthis, there’s nothing straw man about my argument. My point was that anyone that ridicules the idea of comex manipulation is clearly only believing the mainstream media, or not exposing themselves to any media at all, in which case they’re not in a position to provide a view on it. JP Morgan has held 17-24% corners in the gold and silver markets for many years, giving them the ability to manipulate those markets with the greatest of ease. With that ability, do you think that they would not do so for financial gain? And given that western central banks REQUIRE the gold price to be manipulated downwards in order to provide the illusion of economic recovery and currency strength, in the face of record currecny printing, do you really think they are not going to turn a blind eye or indeed instruct the manipulation themselves?

    The evidence in support of precious metal price manipulation is nothing short of overwhelming and obvious to anyone willing to look at the evidence screaming at them from just the Commitment of Trader Reports. How else do you explain an increase of demand for a commodity in the order of 30-50% alongside a reduction in the price of said commmodity of over 30%?

    I deal in facts and facts only. Those crying manipulation are supported by the data, those crying “conspiracy theory” are supported by nothing more than a (now an obviously misguided) trust in central banks , financial institutions and the mainstream media.

    Regardless of your chosen news sources, you are clearly clueless on the subject. The idea that several markets are manipulated has gone from conspiracy theory to conspiracy fact over the last few years, facts eventually acknowledged by ever section of the media. Only a fool would be so confident that the precious metals markets have escaped manipulation as to mock those providing evidence that it is.

    Your homework:- google “Ed steers daily” and read the trading data he provides. Also google Ted Butler and read his comments on the goings on in the precious metals markets. Then google the IMF and BIS and read up on their websites, wherein they admit their role of “price managment” in the gold markets. TO top it all off, read “Currency wars” and the “death of money” by Jim Rickards, a fantastic insight into where the worlds economies are heading. Then, take a look at the gold price charts since 2008 showing the price at the two daily fixes. Google the details of the manipulations in the LIBOR, ISDAfix, FOREX and energy markets etc and compare the size of those markets to the the precious metals markets which are far smaller and therefore more easily manipulated.

    After you’ve read all that, come back and explain to us how there can be no manipulation in the gold market.

  • Bumble

    The price of gold is almost certainly being manipulated. As well as the books dialucrii mentions, there is a detailed examination of it in The Gold Cartel by Dmitri Speck. The point that gold bugs often miss, however, is that for as long as it continues to be manipulated, the price can go anywhere the manipulators want, so it is pointless trying to predict it by looking at fundamental or technical factors. The price of gold is determined by trades in the futures market, which is far bigger than the market for the physical metal. The manipulation will only end when the day comes when nobody is willing to part with the physical metal at the futures price. This will precipitate a huge short squeeze, defaults on contracts, and a lurch upwards in the price as the physical shortage is revealed.

    But there is no predicting when this might happen. There are no reliable and believable numbers about how much gold China, India and Russia are buying, or what stocks remain in the London Bullion Market Association, or the Fed, or the BoE. Gold stocks have been leased, hypothecated, rehypothecated, so many times that it is no longer clear who has legal title to much of it. Dmitri Speck also shows that some bullion banks have been engaging in a kind of fractional reserve leasing of their gold stocks, which has the effect of creating phantom gold, in the same sort of way that fractional reserve lending by banks creates money. Also, there are other imponderables: suppose Portugal or Spain need another bail-out and the Germans insist they sell some of their national gold reserves to cover part of it – Portugal, Spain and Italy have huge reserves and this could add enough supply to the equation to keep the manipulation going for years to come.

    The upshot is, you can’t believe any short-term prediction of the gold price you read.

  • Boris MacDonut

    $1280 today Dom. Just needs a 9% rise in a week to meet your prediction.