Analysts Are Bullish on Gold: Should You Be Worried? 13 comments
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Recently published commentary from analysts at Citigroup and JP Morgan both paint a bright picture for the future of gold. Citigroup specifically mentions the $2,000 level as attainable. JP Morgan recommends buying gold for the run into the holidays.
The Citigroup report runs down many factors that are well known to gold investors. Citi mentions the possibility that recent financial actions of world authorities will either result in massive inflation if the actions are successful; or further economic deterioration that leads to political instability and unrest if the actions are unsuccessful. Either scenario would have positive implications for gold. Citi also mentions the finite supply of gold in the world, and gold’s indisputable status as a monetary instrument. The full report can be found here (pdf link).
By mentioning the $2,000 price level, Citigroup has trumped Morgan Stanley’s lame recommendation that gold will reach $1,000 in three years and Merrill Lynch’s call for $1,500 gold. If you’re going to make a prediction on the price of gold, I guess you have to make it $500 higher than the last analyst.
JP Morgan’s analysts also mention a collection of well known factors pointing in gold’s favor. They see the strong dollar/weak gold link decoupling, the shrinking supply of gold discoveries, the declining pace of central bank gold sales, and the “seizure” of the gold coin and small bar market.
As a gold investor, should you be worried about analysts' latest love affair? Analysts have a less than stellar record for timely recommendations about emerging trends. In many cases, their most bullish predictions have come towards the end of a major move and merely represent an extrapolation of the recent past for reasons already well discounted. Is this time different?
In a word, yes.
Although gold has increased roughly 300% from the lows reached seven years ago, gold is still showing a loss for the year. If this was the typical pile-on of bullish analyst calls, it would more likely be taking place amidst a sharp, upward move.
Secondly, analysts are not jumping into a hot market, they are wading into a very confusing market. A continually evolving array of factors are at play which have baffled and frustrated even long time followers of gold. On one side, there are glaringly obvious reasons why gold should be moving higher. On the other side, there are plenty of credible reasons why gold is stuck in neutral.
When this current “tug of war” in the price of gold eventually resolves itself and gold starts to move higher, analysts will likely respond by ratcheting up their predictions in tandem with the rising price of gold. Even when this starts to happen, I still wouldn’t be worried.
Wait until you hear an analyst report come out with the boldest of the bold predictions yet, “Gold to Reach $10,000 Per Ounce.” The report will likely contain countless, well considered reasons that make $10,000 gold seem not only possible, but probable. Handy charts will extrapolate recent moves to harrowing peaks. Around the same time, any arguments against gold investing will seem downright silly and “man on the street” interviews will elicit sage advice on the merits of buying gold.
That’s when you should be worried about rosy analyst predictions on gold.
Disclosure: Long physical gold.
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This article has 13 comments:
IMHO
Gold investors have been laughed at for years and there have been long periods of declines and/or under performance in price versus other asset classes. Gold, however, is the only monetary asset where the ultimate value of your investment is not subject to someone’s else’s promise or ability to pay. I view gold as the ultimate insurance hedge against a government’s propensity to spend itself into insolvency and, accordingly, I believe that gold should constitute 10 to 20% of one’s core investment assets. Historically, governments have regularly and repeatedly defaulted on their sovereign debts. In every such case of default, the citizens of those nations would have been far better off holding gold rather than government paper.
The new way of war and maintaining superpower status is achieved through financial war. The world powers could not maintain power through use of army defense. We are in the midst of a financial war.
United States would have lost their superpower status in less than a decade if it allowed other BRIC (Brazil, Russia, India and china) countries to grow at double-digit growth.
By spreading the depth (toxic loans) around the world it has crippled the growth of other countries, reduced the oil prices (which was feeding the terrorist nations).
United States has the biggest reserves of the gold in the world.
The next step is to devaluate the dollar to make the trillions of dept owed to China, Japan and Russia worthless and pay back the dept with GOLD.
When Gold reaches the new all time high the inflation would be at 300% compare to current levels. Housing prices will triple in value to make the homeowners rich with about 66% equity.
The new economic cycle will began when the US homeowners are wealthy the refinancing of homes will began to maintain the consumption level of the last few decades….this is when world economy will prosper while US will maintain the super power status.
Any comments?
On Dec 03 03:44 PM twitee wrote:
> Intelligent comments by "Bill Z" .
> The new way of war and maintaining superpower status is achieved
> through financial war. The world powers could not maintain power
> through use of army defense. We are in the midst of a financial war.
>
> United States would have lost their superpower status in less than
> a decade if it allowed other BRIC (Brazil, Russia, India and china)
> countries to grow at double-digit growth.
> By spreading the depth (toxic loans) around the world it has crippled
> the growth of other countries, reduced the oil prices (which was
> feeding the terrorist nations).
>
> United States has the biggest reserves of the gold in the world.
>
>
> The next step is to devaluate the dollar to make the trillions of
> dept owed to China, Japan and Russia worthless and pay back the dept
> with GOLD.
>
> When Gold reaches the new all time high the inflation would be at
> 300% compare to current levels. Housing prices will triple in value
> to make the homeowners rich with about 66% equity.
>
> The new economic cycle will began when the US homeowners are wealthy
> the refinancing of homes will began to maintain the consumption level
> of the last few decades….this is when world economy will prosper
> while US will maintain the super power status.
>
> Any comments?
On Dec 04 09:10 AM Majest3 wrote:
> Nostradamus, l've been long gold over the same period and made a
> nice profit. It all depends on what currency you are using. Gold
> is up just over 300% from the low of 2001 to the high of 2008, not
> much when you compare it to the run up from 1971 to 1980, which was
> over 2150%. I think l'll decline your offer to join the short train.
Let's see how this gold trade works out. The entire world expects gold to go up it seems.
they came down to finish at a 1000% gain. Oh the horror.