Gold’s Long Term Analysis: Will gold Surpass US$2000?

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Highlights:

• Lesson to be Learned from Gold’s 200 Years Price History
• Gold Price Projection Based on Technical Analysis
• Gold Price Forecast Using Elliot Wave Analysis
• Will gold Surpass US$2000?

Overall, 2016 has been a great year for gold and gold mining stocks because the gold’s bottom was confirmed. Gold closed 8.5% higher in 2016 than 2015, whereas Market Vectors Junior Gold Miners ETF (GDXJ) had a significant gain of 59.5%. My mining stocks portfolio more than doubled in value and gained 120.07%. The top performer of my portfolio in 2016 was Euro Sun Mining Inc. (TSE:ESM), you can read the details about Euro Sun Mining in my recently posted article. I also traded Americas Silver Corp. (TSE:USA), Silvercorp Metals Inc (TSE:SVM) and Alio Gold Inc. (TSE:ALO) among many other stocks and still hold these stocks. Now for 2017 and the following years, the question is will gold Surpass US$2000, its previous all-time high of $1920.74. We can get the answer by observing the previous trends and technical analysis as explained in the following sections.

Lesson to be Learned from Gold’s 200 Years Price History

By examining the gold price pattern, in US dollars, over the last 200 years (see the chart below), it’s evident that gold is up by 400% since 1999 low of US$251 and 4800% since the beginning of the fiat era in 1933 when gold was trading around US$25. The price of gold had been held down at $35/ounce for decades and it wasn’t legal for American people to own or trade gold. Then in the 1970s, the gold price went way up because inflation soared in the U.S. and owning/trading gold became legal again. The biggest boom in the gold price happened from 1976 to 1980 when gold price soared to over 900%.

Source: Historical 200 Year Gold Price Chart by HoldemPlayer (a former member at the Kitco Gold Forums)

Gold Price Projection Based on Technical Analysis

I believe that technical analysis, in addition to fundamental analysis, plays an important role in predicting the market trends especially the long term. Fibonacci Projections and Elliot Wave analysis are the most popular technical analysis methods among other methods for projecting market price and direction.

Gold Price Forecast using Fibonacci Projections and Correlations

I used to follow QuadG’s Major Market Movements thread at Kitco gold forum but sadly he is not providing his technical insights since late 2015. HoldemPlayer, a former member at the Kitco Gold Forums, was endorsed by QuadG as an excellent elliottician but he stopped posting at Kitco since 2012.

HoldemPlayer, in 2012,  posted a comparison of previous corrections in the Gold market, and what it could be projecting for the current one using an equal comparison as well as using Fibonacci projections and correlations (see the historical Gold price chart below). Anyways, according to his calculations, during the 1970 to 1980 bull run the largest correction was roughly 45 to 47% from 1974 to 1976 i.e. from the high of $195 to the low of $103.5. His assumption in 2012 was that the Gold correction could reach an equal degree or magnitude to that of 1974 to 1976 down to the price range of US$1056 to US$1018. He also mentioned that if the Gold correction becomes greater than 34.02% from 2008 and exceeds 71.64% i.e. below US$545 as seen from 1980 to 1999, the long term bull (beginning in 1971) could be considered technically dead.

The gold price target posted in 2012 was met in November 2015.  I and others in the bullish camp believe that the strong rebound in gold price has been confirmed in December 2016 as Gold refused to take out the lows set back in 2015 and touched its higher lows around US$1124 meeting the uptrend line from 1999 lows (see the chart below).

Source:XAUUSD Monthly Chart by http://smartstocktradingstrategies.com

Having explained the analogy between 1974-1976 and 2011-2015 corrections, it could be possible that 1976 to 1980 gold bull move will be repeated again. The article Gold Price Action In 2016 Is A Lot Like 1976 explains the similarities between historical and recent gold cycles quite well.

Gold Price Forecast Using Elliot Wave Analysis

The timing and price targets for the coming years has been explained very well by QuadG in late 2015, as below.

Gold cycle started in 1933 with gold confiscation act in the USA that radically changed the way the US government was handling the valuation of gold. They increased the value of gold from around $20 to $35 dollars, which was a substantial move in an attempt to generate some inflation. That $20 bottom in 1933 was basically the start of major generational wave 1 “<1>” to the upside and lasted until 1980. During that 47 years cycle, gold price moved 33 times of the bottom value.

Then the major corrective wave 2 “<2>” started in 1980 and lasted for 20 years until 1999 when the gold bottom was reached at $251 (71% correction from 1980 peak of $887).

From 1999 bottom the next upside move continued until 2011, it was a 12 years ride of 7.5x move from the bottom ($251) to the top. Since this move was smaller and took less time than the major generational wave 1, the last move can be considered as the sub-wave 1 “[1]” of a larger generational wave “<3>”. Since wave 1 took 47 years, wave 3 “<3>” should be larger than subwave 1 “[1]” in terms of price movement and duration. We are still early on in this massive wave 3 “<3>” to the upside. Once we are sure that the corrective subwave 2 “[2]” is complete, it is very possible that we may see 10x move upside for subwave 3 “[3] of <3>” if history repeats itself. The tenfold move in the gold price from 2015 lows will cause the price to soar up to $10450. Even at $10450 wave 3 is nowhere close to wave 1. A conservative estimate for major wave 3 “<3>” of gold will be $8283 i.e. 33 times the 1999 bottom of $251. Since wave 3 has to be bigger than wave 1, we might see $13401 ($8283 x 1.618).

Source: Gold’s Long Term Elliot Wave analysis by QuadG

Will gold Surpass US$2000?

In our own times from 1999 to 2011, if gold can move from $251 to $1920 in twelve years, why can’t it happen again? However, the duration of the current (upcoming) bull run will also be longer and not exactly four years like 1976-1980 gold run as some are expecting. If we apply 1.618 Fibonacci projection to the previous 12 years bull run from 1999 to 2011, we have about 12-18 years to see the gold surpass US$ 10000. This makes more sense as the change in gold price from US$1000 to US$10000 in the next 12 years could be achieved with an annualized return of 21.15%. So, we are very likely to see $2000 gold in the next few years. The same factors that caused price movements in the past will play their role in the future e.g. inflation, geopolitical conditions etc.

Like in 2016, I am going continue my efforts in finding gold, silver, lithium, uranium, and companies with good assets and will trade both in shorter and longer time span because, as I said at the beginning of this article, junior miners are the way to go. Even though the miners have shown awesome performance in 2016, we are nowhere close to the maximum historic price levels in the junior mining sector. There are still many junior mining companies that are more than 70% lower than their peak price during the last bull run.