With the important meeting that the Feds have coming up next week, I would expect the price of gold to be challenged again. The SPDR Gold Shares (GLD) trades today at 127.28 while I write this article. It has been in a prolonged downward trend since the last quarter of 2012. Because of this, some investors might look at the yellow metal as an investment opportunity. As I look at the markets and the events that are transpiring, these are my thoughts of how I think gold may react over the next 12 to 18 months.
September, on the average, has been the best month of the year for the value of gold to increase. Of all 12 months, September has seen an average increase of 2.3% over the last few decades. We all know gold has been going up for a number of years, here is a chart showing gold's performance since 1988 through 2008. There is a logical reason for this too.
Often the Indian holidays in October lead the way. Toward the end of the year we have Christmas and the Chinese New Year.
If prices continue to fall as predicted I wouldn't be surprised if we have a "seasonal" leveling off or even a possible slight increase in price due to increased buying in Asia. There are many in India and China that will buy gold jewelry because of low prices. In fact, the first half of 2013 saw a large increase in the use of gold being made into jewelry as compared to the year before. Even though most analysts expect the yellow metal to continue to decrease in value, don't be surprised if it has a last ditch rally because of the time of the year.
Gold may become a safe haven for the Indian rupee. Since the Indian currency has faced rising weakness over the last few months, gold is going up in value. I can't say for sure but I wouldn't be surprised in an increased the investment in the yellow metal because of it. Culturally, Asia has look at gold as something very important and helpful.
I see gold dropping in value through most of 2014.I don't know how anyone could see anything differently. For 12 years old rally, but here in 2013 it's down almost 20% due mainly because of the Feds tapering as investors back away from it. Investors have sold more gold than they have bought every month this year so far.
Goldman Sachs has a 12 month price target for gold at $1175 an ounce.
For the longest time, goal was bought as a safe haven because of the fear of the possible collapse of currency as sovereign governments printed money like it was going out of style. Now that economic stability continues to improve and the United States is moving away from propping up the markets with its stimulus package, there is no reason for gold continue to move up like it has. Plain and simple, gold has no catalyst.
It's not just Gold
It's not just gold that is expected to take a turn in price. Take a look at some of these 2014 analyst's forecasts for different sectors:
- Standard & Poor's GSCI Enhanced Commodity Index is expected to drop 2%
- Energy may drop 1%
- Precious metals fall by 15%
- Agriculture is expected to decline by 7%
In fact, buying futures a year out and holding them, expecting them to increase in value-is not recommended right now.
When I look at gold over the next 12 to 18 months, I wouldn't be surprised to see the metal continue to drop in price over the next 2 to 4 weeks. Because of the season we are coming to I would also think it would level off and even rally into early 2014 if there is enough buying pressure coming out of Asia. After a rally, I would expect the metal to continue to lose value. At this point, I do not see a catalyst that will turn gold around for an extended long term rally.