On The Feasibility of Gold Below $1000

Market Trends - 29/07/2015

The free-handed monetary policy from banks behind the world’s major economies was expected to drive a booming inflationary period, as the monetary base rapidly ballooned after the last financial crisis. Now, economists that once promoted an increase in gold prices are forced to come to terms with the real situation in the commodities market – total collapse. It seems like the positive cycle of commodities seen since the last crisis has ended, and the asset class is now suffering a correctionary period due to increased confidence in Central Banks and a lack of inflation. One is reminded of the rollercoaster that oil went on in 2008, when the price of a barrel of crude climbed to over $145 before sinking into the low $30s. For some, the lesson that prices move in both directions is hard-learned. There are always those who remain bullish even when an instrument is at all-time highs, projecting 100-200% increases while defying the possibility that it may never return to its current price ever again. Seven years later the story is once more being told, but the protagonist this time is gold.

The expression “never say never” is especially applicable to investing, and is one that most experienced traders learn early in their careers. Anything can happen in this profession, and those who keep this in mind generally maintain healthier portfolios over time than nonbelievers. The investors who made the mistake of calling a $300 ceiling on oil in 2008 are similar to those who are now backtracking after overly optimistic projections on gold bullion. Some economists ignored the forward analyses showing skyscraper-esque heights in the price of gold with no descent in sight, and it is apparent that they are the ones who learned their lesson seven years ago. While making predictions is tough in a climate like this, it is not unreasonable to think that gold may continue its descent. The current target that everyone is watching is the $1050 per troy ounce level, and if that is broken a dive past $1000 is entirely achievable. We now have for our examination the defeat of two assets that were previously thought nigh-invincible, teaching us that it is not only the novice traders that have the word ‘never’ in their vocabulary.


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