How Low Could Gold Go?

|
Includes: GLD
by: Kevin McElroy

I'm not selling gold at this point. But I believe it could certainly retrace lower from here.

I know if you're like me, you probably feel a little bit sore over the price movement in gold. But I'd like to salve your nerves. These types of nausea inducing price swings are normal parts of a sustained bull market in precious metals.

So just to give you a psychological boost, I'd like to discuss what I believe to be the worst likely example of what we could see for gold. Forewarned is forearmed - and if you can prepare yourself for the worst, you won't be pressured into doing something rash when the worst occurs.

For the record, I'm still long-term bullish on gold. I'm not a day-trader, so these price movements are at best interesting, and at worst, nerve-wracking. I'm inclined to ignore them, and I think you're best advised to ignore them too - but it wouldn't be much of an article if I just told you to ignore price swings.

In any event, my worst-likely-case scenario for gold would take us down to around $1,200 an ounce. That would be an additional 25% fall from today's prices of around $1,600. And it would be a total fall of about 37% - a huge, scary move.

But let's look back into the past to 2008. That's when gold corrected from over $1,000 to about $700. That's about 30%.

And if you remember back to the 1970s, we saw gold correct from $200 down to almost $100 between 1974 and 1976. That's almost a 50% draw down.

So these moves are rare - but not unheard of. And they're a little scary, but not terribly harmful. Well, I should amend that statement. They can be extremely harmful if you let yourself get shaken out of your position during these corrections. If you sold your gold in 1975 or mid-2008, you missed out on the next leg up.

Okay, so $1,200 is what I believe to be the worst-likely scenario. But the absolute worst case scenario I can imagine would be a total correction of about 50% from the peak - which would take us down to about $950 an ounce.

In any case, I'll be buying.

Disclosure: None