Where to next for gold?

A number of you have asked for my latest thoughts on gold. In particular, you’ve been asking about my spring target of $1,400 an ounce. So I’d like to take a look at it this morning.

Let’s be honest, in 2010 gold has been a bit of a dog. So have gold shares. Gold began the year at about $1,120 an ounce. Today it sits at around $1,110.

Gold shares, as measured by the index of unhedged gold miners, the HUI, are down some 10%. The HUI began 2010 at just below 450 and now sits barely above 400. The S&P 500, meanwhile, which began the year at around 1,130, now sits a few percent higher at around 1,170.

Worse still, in January’s correction, gold and gold shares were hit harder than the stock market. And in the subsequent bounce, they have been laggards. This is not the action I would like to see. I would prefer some signs of leadership.

So what next?

Why you should still hold gold

Looking first at the longer term, I remain utterly convinced by the gold story.

I can’t help but think that the credit-based, fiat monetary system under which we operate is going to end badly. Winston Churchill said, “All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster.”

Put simply, we have burdened ourselves with too much debt at almost every level of society, from government to corporate to individual. The simplest way out is some kind of currency devaluation.

Whether this is gradual, as we’ve seen over the past 12 months, (a pound buys you a lot less than it did a year ago) or comes in a sudden collapse, remains to be seen.

The former is more likely in my view. That has been the pattern of the last 100 years. Even house prices have been constant in sterling terms in 2009-10, although they have been falling if you measure them in foreign currency or gold. Indeed, with interest rates on bank accounts generally below the rate of inflation, saving sterling is a loss-making exercise.

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Given that most foreign central banks are pursuing similar policies, holding foreign currency is not particularly attractive either. That leaves gold. Indeed, despite a mediocre performance against the US dollar (which I turned bullish on in November) gold is actually up 5% this year against sterling. On 1 January it cost £700 an ounce. It now sits at £740. The chart below shows gold vs sterling.

So what about the $1,400 target?

This is late March, so – unless we have a bonanza April – it doesn’t look like we’re going to hit my spring target of $1,400. But let’s not throw the towel in on this one just yet.

If you read my column regularly, you’ll know that I arrived at this target based on a repeating pattern that gold has shown since 2001. It finds a low, usually in July or August, then embarks on a move up. This move often lasts some six to nine months, and ends in a blow-off top the following spring – usually following a sharp 10% correction en route. There then follows a period of range trading which lasts some ten to 18 months, before the next move up.

Below is an illustration of the pattern I am describing:

Of course, there is absolutely no guarantee this pattern will continue to repeat. But it’s useful as an exercise to see where we are in the scheme of things. Regarding this move, we had our summer low quite early – in July as it happens – then we had our break out above the old highs a little early too. That came in late September, rather than October. In December we had our nasty mid-move correction. So the pattern looked good for a repetition. In fact, we may still see $1,400 by May if we have another April like that of 2006.

However, this mid-move correction is continuing for longer than I’d like. Perhaps December was the multi-month blow-off top, and we are now in one of those extended periods of consolidation, when gold bulls can’t understand why the price isn’t rising with the fundamentals so strong. Perhaps I should be looking at April 2009 as the ‘summer low’, which would mean we’ve had our six- to nine-month up-move. We would now be in a period of range trading and consolidation.

It could be a positive that gold hasn’t reached $1,400

Reluctantly, I have to admit this now appears to be the case. I’ll give it until early May before I declare that target dead in the coffin. But if it’s dead, that’s actually positive.

I don’t like to see gold going too far too fast, as it did in 2006 and 2008. The subsequent corrections are too violent and the consolidations take longer. If we are indeed now in a period of consolidation, it’s not likely to last for that long, as the previous upmove was comparatively small.

What’s more, it looks as though gold has found its low somewhere in the $1,060 to $1,080 area.

In fact, I see similarities in the chart between now and the 2002-3 upmove, which eventually became a lovely run.

To sum up, in the short-term, I’m quite bullish on gold and gold shares. The spring is often a good season for gold and there seems to be plenty of support just below $1,100. And in the long-term I am convinced everyone should own some. It’s essential.

But for now, my spring target of $1,400 looks like it was, well, a little optimistic.

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  • Nic T

    Hum.. So if you reach the $1400 target, then it is good because your prediction was correct; if it doesn’t, that is also good. Sounds like a classic heads I win, tails you lose? If gold goes down to $900, then presumably it is better still, as then the upside is even greater…!?

    Short term price speculation in gold, as in other assets, is just that, speculation. Having said that, I agree with the author’s view that gold should be a part of a balanced portfolio as an insurance policy, but to try to guess price performance in 3,6, or 9 months in my opinion is a good pub game, nothing more.

  • John S

    Gold seems to no longer be in fashion for the hot money, due to their being other more profitable punts, and lack of legs in the circular windup executed by the speculators.

    The only thing driving the gold price up would be crisis in China (hotting up), Russia (gone quiet), squealing pigs, or rampant inflation.

    But it is interesting that some were promising a drop back to 850 (fundamentals?) which hasn’t happened which might indicate a high level of uncertainty in the investment community.

  • GaryN

    Nic T, agree it’s always worthwhile having gold around. But the usual fundamentals, ie lower production, fairly good upturn in world demand and massive financial uncertainty around the globe, still point to a firming over the short-medium term. But sentiment can play its usual part and scuper any predictions we may have. But for the UK, we can’t put the grief off forever so something has to give soon, whether stocks or currency, or both, so as you say the sensible approach is to have some gold anyway!

  • StephenB

    On a five year year view, I am very bullish on gold…but there is a problem. When the the wheels come off this rally and I think that this is quite soon, there will be a credit crunch of massive proportions. Sellers will sell whatever they have that is “holding up well”. Everything takes a hit in markets like this and Gold will not be immune. Remember markets are driven by emotions NOT facts and albeit the fundamentals are terrific, in my view it is too early to be bullish on anything!

  • John M

    Arguments about market trends are irrelevant in precious metals. These are manipulated markets as was demonstrated to the CFTC meeting on position limits on March 25? It concerns a London metal trader Andrew Maguire who alleges that JPMorganChase manipulates the precious metals markets and brag how they make money doing so. You can read it here http://www.gata.org/node/8466 By a strange coincidence he and his wife were injured the following day in a hit and run accident in London! Reported in the New York Post here: http://www.nypost.com/p/news/business/jpmorgan_chase_story_in_uk_DsMN4PnXFoQG5KdevIsQ7N#ixzz0jZHvERAe

  • Richard C

    Some gold miners have done me pretty well recently – Cluff, Medusa and Avocet – and I notice that Slater is recommending Norsegold (the fundamentals look pretty good) in the Investors Chronicle – so hopefully if we get some rise in the gold price they should do even better.

  • jc

    The regular predictable movements of gold and frequent corrections appear to me as a sign of market manipulation. See 5. John M. Whats also interesting in the CFTC hearing was the admission that gold is often traded in a fractional reserve system with factors of 100:1, which means that if you ‘own’ unallocated gold (typically paper) and try to get physical delivery, then they’ll be 99 other people queueing for your oz of gold. I think the common term for this is Ponzi scheme.

  • Alex E

    Looking at charts is all very interesting (albeit not for me) and “useful as an exercise to see where we are in the scheme of things”. but I would have liked to hear opinions on the possible impact of IMF sales on prices and the covert sales or purchases by central banks.
    I tend to agree with Stephen B if I understand him: that when all hell lets loose, gold will get battered like any other stocks that represent value. However, that will present an excellent buying opportunity.

  • gazkaz

    If you are interested in any way in GOLD – if you do nothing else all year, LISTEN TO THIS INTERVIEW


    May save you a lot of money, heartache and uninformed opinion.

  • Jonathan James Harrison
  • rikrok

    Stephen B,
    I agree – when the sell of comes gold prices will fall too…If it break below 1000$ I have a low end target of 845$ at that point probably by November this year……. it will be a good buying opportunity for the longer term.

  • JGH

    The price of gold is only half the equation. For UK investors, the GBP:USD exchange rate is the other half. What matters to me is not whether gold rises in dollar terms but whether it rises in sterling terms. It would be interesting to know whether the staircase pattern is evident on a GBP gold chart.

  • James Knock




  • sam

    Let’s get back to the actual miners, and in particular Leyshon Resources which Dominic originally recommended as a buy at 21p.
    It tanked to 4p for 12 months and has now recovered to 11p.
    What’s the story Dominic ? Is it still a buy or was it just a bum call ?

    As far as the physical stuff I prefer to hold it in my hand. Then I know exactly what I’ve got. And I’ll always keep some of it whatever happens.

  • Chris B (Slough)

    General view is if the markets fall, Gold & Silver will also fall initially. As with previous depressions, at some point the gold price disconnects from the falling markets & rises up & beyond previous highs. Continued destruction of our currencies through money printing (QE) by our governments can only lead to eventual chaos. This will likely come in waves as the dominoes start to topple, & will no doubt take a good amount of time to happen, longer than we think? The only spanner in the works is, if all countries are in a race to the bottom, then relatively the currencies remain the same to each other. Only nations trying to climb out of bankruptcy (like ourselves) are attempting to reflate their economies through QE schemes. Countries that have not done this or have stopped like Australia, will obviously have stronger currencies. Odd import pricing is becoming evident in the super markets. Perhaps a shrewd person can see ways to benefit from the happening currency debacle.

  • Keith P

    This is the best discussion I’ve seen on Moneyweek since I started receiving it. It concerns me deeply that we might be at the mercy of big time fraudulent manipulators in the gold and silver markets, with physical gold leveraged at 100:1. The kingworldnews radio interview mentioned above is scary, although I admit to not fully understanding it. Anyone care to say, in the light of that radio interview, whether I should be selling my ‘sterling’ gold ETFs now? Can I possibly know if my ETFs are leveraged and potentially valueless?

  • jj

    Hard to predict short term moves but longer term should be bullish for gold.When the U.S. Dollar no longer is something you buy as a “flight to quality” then gold will really take off.

  • Mike

    A good discussion. The events that seem relevant to the immediate future are: central bank buying, £/$ exchange rate. double dip recession and for a one-off negative effect on the £ a Labour victory or hung parliament.
    If currency devaluation occurs slowly thyen gold might also move slowly and therefore be prone to manipulation (if it does occur).
    Could a sharp double-dip recession causegold to spike and make mainpulation impossible?
    I have it in my mind that Dominic doesn’t agree that manipulation occurs. Is that correct?

  • Timos

    How much will the gold price affect the actual miners?
    I can see that firms holding gold shares will react to a fall but does this also apply to the miners and refiners? How do others hold gold in terests?

  • allthatglitters….

    now that the world knows the handful of bullion banks have been committing fraud, using 100/1 leverage selling paper gold, the end game is going to be a massive short squeeze. only 1 investor out of every 100 will get his gold, the rest will be forced to accept a cash settlement in fiat currency.
    physical gold will not be available at ANY price.
    eric sprott made an offer to bu the imf gold, he was refused, do they have any physical gold to sell like they keep threatening, was the sale to india just a sham?
    how come the big 4 bullion banks hold almost 100% of the short position in silver?
    gold is not volatile it is the worlds dying fiat currencies that are the danger to your wealth. got gold?

  • Bad Brian

    The price is being held in check by the FED through three banks led by J P Morgan Chaise short selling to the tune of between 24 and 32 million ounces every time the price heads north.
    The FED must protect the dollars reserve currency status at any cost.

  • NolaM

    Keith P…Look at the Banks that are backing your ETF.
    Chances are they are the same ones doing the market manipulation.
    If it is not physically in your sweaty little hand, you don’t own Gold.
    While you are over at King’s world, listen to the audio archives.
    Then go to oneradionetwork.com sign up free and listen to Andy Gause every Wed.
    It is time to educate yourself in what is real and what is fantasy.
    Google ‘USA is a corporation.’ and ‘UK is a corporation’

  • gazkaz

    Read the prospectus of the ETF – most aren’t responsible for countyparty risk, content/quality of gold, often merely accepting custodians word that it has even been received; and they add just about every other disclaimer you could imagine including loss/theft (on that point – not usually insured either).

    Genuine & Physical Gold is the only really definite tangible.

    If the paper gold scam spooks investors (as it should), there will be a rush for the exit – and physical gold will go through the roof and way beyond.

    Help pass on the warning of King World News – hopefully it may help Joe Public from possiby losing his shirt & more.

  • ktheking

    With the lack of safe alternatives people are turning to wine & art to invest. Adding Gold to that list is then obvious too.
    Remembder that basically nothing has been done to solve this current money printing frenzy which has started in 70′ with the abolishment of the gold standard.
    I say with trust : a bright future exist for gold holders.
    However tables will turn once the printing frenzy is over … but until then,no worries …

  • Screwloose

    @Alex E

    The odd-lot of gold that the IMF have been punting around for years [they’ve threatened to sell it about 10 times] is now a completely busted flush. India snapped-up half @$1045 and the 191 tons [allegedly] left couldn’t keep London supplied for a morning. [$22 billion traded a day] let alone affect the gold price. Central bank sales [previously <500 tons a year under the Washington Agreement] have reversed and they are now net buyers. [Not Gordon Brown - of course....]

    The open admission that “phantom gold” is being sold on the London physical market will cause a serious dislocation once it becomes more widely disseminated. [They can’t kill everyone – can they..?] Paper gold is well understood; futures options etc. where the intent is a leveraged derivative bet on the gold price [only 0.5% ever stand for delivery] but when counterparties are caught charging 99/100 people storage fees on gold that they have never purchased on your behalf……

  • Screwloose

    @Keith P

    If you have sterling ETFs, then they will probably be with the fairly well respected ETF Securities. Their prospectus is far more open than the opaque GLD, but their custodian is HSBC N.A. – and that alone must give you pause…. [The best PM ETF is ZKB; if you can….]

    With the situation developing now; the safest option is bullion Sovereigns in your own possession – no CGT either, so if it does blow, you won’t be sharing the profits with HMRC.

  • gollumthegreat

    reading comments regarding 4 banks manipulating metals prices with great interest. when new to investing in the pms i foolishly invested in perth mint certificates of the unallocated type.
    my wish is to take physical possession of the silver by importing it as minted coins of the lunar series, but on top of the £4 per coin minting cost the uk government charge a vat of over 22%.
    new investors should beware. for me silver will have to double before i make any money.

  • John M

    Glad the price manipulation is getting wider coverage. Evidently Brown’s Bottom sale of UK gold was to save two LBMA bullion banks (Rothschild and AIG!) caught in a short squeeze and not, as alleged, to balance UK reserves with the new Euro. http://www.sott.net/articles/show/205478-Brown-s-Bottom-Is-an-Enormous-Issue-In-the-UK-Was-This-a-Bailout-of-the-Multinational-Bullion-Banks-Involving-the-NY-Fed-
    Yes in the coming hyper inflation, only outright ownership of the metal will protect you. Will HSBC New York or JPMorganChase custodians of SLV and GLD, the biggest ETFs, be saved if caught in a short squeeze? Personally I own gold and silver bullion through BullionVault.com and recommend it. It is mine, no counterparty and it is looked after by a commercial company, not a bank, in Zurich for a small monthly fee.

  • The Lone Ranger

    I would not personally be comfortable owning gold or silver in an ETF.

    I prefer, in no particular order: (1) physical in possession, (2) goldmoney.com, (3) bullionvault.com and (4) allocated Perth Mint depository service.

    Both goldmoney.com and bullionvault.com are well-established and hold hundreds of millions of pounds worth of precious metals for their clients. The proprietor of bullionvault is a member of the LBMA and James Turk, the founder of goldmoney.com, is a well-respected veteran gold market commentator. Bear in mind that neither is regulated by the FSA. Goldmoney.com is based in Jersey. Though you may think it a positive to keep your metals offshore if you see capital controls ahead. The Perth Mint is owned (?) or guaranteed by the Western Australian government. So it’s a bona fide institution, though some might be nervous of its proximity to government.

    Plus a smattering of well-chosen gold and silver mining shares.

  • The Lone Ranger

    The best sites on the internet if you want to read more about gold and silver are

    http://www.butlerresearch.com/archive-free.asp and

    If you want to see Bill Murphy’s testimony to the CFTC (speed-read, to squeeze as much as possible onto the official record in 5 minutes), go to:


    Murphy to the CFTC last week on the whistleblower who was subject to what looks like an assassination attempt the following day:


    The whistleblower, in detail:


    Adrian Douglas of GATA tells the CFTC LBMA gold trading is a Ponzi scheme:


  • Keith P

    I just looked up my gold ETFs. They are (code) ETFS , M Sec Physical Gold (GBP); and (code) GBSS, Gold Bullion Securities both traded through the LSE. Any views on these, anyone? I’m presently up with both of them. With regard to Bullionvault, if it is not physically in your hands, how do you know you haven’t bought leveraged paper and that it really is in that vault in Zurich? After all, you can’t look at it to find your name on it. Each bar looks the same.

  • The Lone Ranger

    When I first started investing in gold seven years ago I bought krugerrands and gold maple leafs. I did not appreciate that CGT was inapplicable to British gold sovereigns as legal tender (probably – looks like there may be a technical loose end or two). You pay a slightly higher premium because of that, but then some of that is recoupable if you sell.

    In which case, you’d be nuts to buy gold coinage other than sovereigns if you are British tax resident.

    I think (but am not sure) that the same applies to silver britannias, but then the premium on those is just ridiculous. I wouldn’t buy them. There’s VAT to pay on new silver, which is why offshore holdings like goldmoney.com or Perth Mint are a good idea, or wholesale through bullionvault.com provided you don’t take physical delivery of your bullionvault bar(s).

    As you can tell from my username I’m a Ted Butler fan and think silver will outperform gold.

  • The Lone Ranger

    Keith P, have a detailed look through BullionVault’s website. Both they and goldmoney.com go to some lengths to describe the process of matching up delivered, allocated gold with credit entries on their client records. They have daily audits and numbered bar lists. I know ETFS does too, but what other liens are there on their metal? I don’t know.

    Unless you are going to get a numbered bar allocated to you like with the Perth Mint’s allocated depository service (BullionVault do have a service for this) the best you can hope for is (1) assurance that the counterparty has eg 12,345 allocated physical holdings and 12,345 client credits, (2) no competing claims over the holdings, and (3) a vault manager that is not also a bullion bank.

    Personally, I think they are a better option than ETFs. Gold is so compact that there’s a case to hold it in possession anyway. Silver is the real reason to use BV, GM or PM; you get so much more of it for your paper pound (at the moment…)

  • gazkaz

    The Gold ETF small print is quite scary – they have disclaimers for everything and YOU carry the ultimate can.

    Look up on http://www.gata.org about fort knox and the Bank of England “fictional reserves” (never audited !)

    While you are there – look up Tungsten gold bars -very scary what could be backing any paper gold/ETF’s.

    Even more scary – one ounce of gold under the fractional system supports 100 ounces of paper IOU Gold.

    Even worse ………………. “The Market” counts paper IOU’s as >

    If you haven’t listened to the above link to KingWorld News – please do so. THEN WARN OTHERS FAR & WIDE.

    As JP Morgan said “Gold & Silver are money, everything else is just credit”

    I would update by adding “physical Gold & Silver in your hand………….etc”

    Invest well and don’t get burned in the double dip.

  • gazkaz

    Upload lost part of my post:-

    Even worse ………………. “The Market” counts paper IOU’s as PHYSICAL GOLD !!!!!!!”

  • Screwloose

    @Keith P.

    GBSS are now part of ETF Securities; they acquired the Lyxor ETFs some years ago, so your ETFs are essentially with the same company. I’ve owned GBSS in the past and couldn’t find anything obviously wrong – except for who their custodian is….


    You’ve put your finger on the only worry with GM and BullionVault. Unless you have at least 11.5 kg with them – and can then reserve a specific, numbered, bar – you only have a claim agaist a pool of gold which you have never seen.

    The mere existence of a general bar list is no longer a comfort when it’s openly admitted that there are now 100 conflicting claims against every physical ounce.

  • Keith P

    Thanks to Screwloose and Lone Ranger. I’ve discovered my GBSS ETFs are backed by HSBC gold bars in the USA. Given the world of paper we now inhabit, I’m still not confident.

    I’ve been gobsmacked by the GATA website and the scandalous ‘Tungsten’ gold bar fraud. I don’t know if these duff bars are manufactured by the US Government, as some claim.

    Anyway, I’m voting for safety, even if it costs a small margin – selling my ETFs after Easter and buying physical gold instead, probably from http://www.bullionbypost.co.uk/gold-bars/1-ounce-gold-bar/.

    They claim to offer the best deal on prices, with LBMA one ounce bars at £774 if you buy 20, with an ounce of gold bullion sovereigns at £777. This compares with today’s spot price of £736.62. And they promise to buy back at 98% of the spot price. If anyone knows a better deal, I’d be interested in your advice.


  • Kirsch

    What do y’all think of Bullion Vault?

    Does that count as physical gold?

  • Honest J

    kirsch the inference i gather from gazkaz, the king world news & gata site is you either “have gold” OR you have a piece of paper (email or internet account) with IOU…….. on it.
    I will be moving the latter to the former for that reason.
    Thanks gazkaz for bringing it to my attention.

  • The Lone Ranger

    BullionVault website: “We take the current bar lists and reconcile them exactly to BullionVault’s records of clients’ gold, and we publish the proof on our Daily Audit pages for your inspection – every day.”

    I’m sure the GM website says something similar.

    BV website link describing the unallocated method used by the bullion banks: http://goldnews.bullionvault.com/houseview/banking_on_gold

    Nothing is 100% safe. If you keep gold in your sock drawer it could be stolen and there is no one-click way to sell it. On the other hand, gold held with BV and GM is not gold in possession. But it IS very different from an unallocated claim held with a bullion bank.

    I would not personally keep gold with BV, GM or the PM as it’s insufficiently bulky. BV, GM and the PM are for silver; it makes sense to spread your holdings across all three. It’s not perfect, but then I need somewhere to put a bed and a tv; I can’t have silver piled up in the front room!

  • The Lone Ranger

    The other reason, as stated, why BV, GM and the PM are for silver is because you can’t buy and take delivery of silver in the UK without paying VAT on it.

    I personally think gold is headed for $5000 (x5) and silver for $200 (x10) so I prefer silver to gold. Which is why I prefer BV, GM and the PM to holding in possession.

    The long and short of it is that no one knows exactly how things will pan out. Hedging is the name of the game: some silver, some gold, some in possession, some spread across BV, GM and the PM. That way you can’t be cleaned out by a cat burglar or by James Turk or Paul Tustain suddenly going dark.

    And absolutely frigging none in ETFs whose bars are stored by bullion banks!!!

  • gazkaz

    3 Points
    1- London Good Delivery Gold Bars are taken at face value – see Tungsten
    2-Gold IOU’s are classed as physical within the Gold Markets – see fractional 100:1 paper to metal.
    3-Maddoff’s ponzi was “audited” for how many years.

    I would add that the theoretical total of all “stated” physical gold SUBSTANTIALLY exceeds, by multiples, all the gold ever mined.

    How confident are you of what backs your paper gold – with anyone . Read the ifs, buts, maybes and disclaimers in the prospectus;
    – as said above “never had a problem with……” – I would say……. yet …… (& see Maddoff)

  • Johnny

    If you are not a metallurgist then how do you know that the metal in your possession is actually gold? How far do you have to take the paranoia?


    Johnny- take some time to read gata.org, listen to the KingWN i/v link above.

    Then :- watch these videos – check the interviewee’s qualifications -( as good as you can get & then some).


    Or stick with the papers and sky news – after all they say ………..is bliss.

    Paranoia – best laugh I have had for a while.

  • gazkaz

    Paranoid, conspiracy whackos are US senate candidates too.


  • Roy

    As a matter of physics, gold has a wonderful built-in, anti-counterfeiting device……its weight. Very few elements have the mass/density of gold. Of those all but 2 are more expensive than gold (platinum & rhodium). Uranium and Tungsten are the only less expensive alternatives. Uranium is controlled and deadly, while tungsten requires more heat to melt than any element besides carbon. Simply, a gold coin made out of lead or whatever would weigh too little or be too big. You can’t fool physics.

  • Sling Shot

    I’ve been cruising the internet and found an interesting article. You may want to read Mark J. Lundeen’s Bear Market Report Week 129.


    He’s comments on the Fed Monetizing the debt is worth reading and he has a table listing how many paper dollars the US has printed to each ounce of gold it has in Fort Knox since 1945.

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