Gold performed outstandingly last week: much to everyone’s relief gold prices escaped the $1,250 an ounce “danger zone” and leapt 2.2% higher, closing the week at $1,277.88 per ounce. Nursing great expectations, investors are wondering if this is just a recovery or the start of a new course towards the $1,300 per ounce milestone and beyond.
We are now at the beginning of the summer period, and very close to the end of the second quarter, so it’s high time we took a glance at the gold market’s statistics and make an account of its progress in the past 12-18 months. Moreover, this is a good opportunity to make an account of your own individual investment, contemplate on the outcome of your decisions and adjust your expectations and goals for the foreseeable future. Statistical (price) charts and technical analysis could prove very useful for that.
The first thing that you must remember when looking at statistical charts is the old anecdote “when the master eats two birds a day and the servant eats nothing, statistics say that they each eat one bird”. Although this definition of averages does in a way distort and oversimplify the significance of this very crucial factor, it nevertheless introduces the importance of volatility and price dispersion within a field of statistical analysis.
Last year displayed a complete set of negative market specifics: unusual volatility, large price dispersion, and gold prices moving irrationally, deprived of any investment logic. As a result, the year closed with significant losses and discomfort for the great majority of investors.Predictions about last year’s gold prices proved far too optimistic, since the average price was $1,411 an ounce.
Statistically, 2014 looks set to be a second year of price decline for gold, as prices have not yet reached last year’s average.
Investors should treat forecasts with caution. Sometimes they are based on false grounds, occasionally they are written with an ulterior motive, often they are made to impress, and even when they are well-researched and full of good intentions they are rarely accurate enough to be of much help when they are read wrong.
Precious metals consultancy Thomson Reuters GFMS is continuing to forecast an average of $1 225 an ounce for the year. According to a survey of analysts compiled by the London Bullion Market Association (LBMA), gold prices will average $1,219 an ounce this year, and the analysts expect the gold price to range between $1,067 and $1,379 an ounce. Separately, analysts at Morgan Stanley cut their gold price forecasts for 2014 by 12% to $1,160 an ounce.
“Indeed, a substantial shock to the world market would be needed to see gold return to the price levels of 2011 and 2012. This would either imply a substantial flight to gold as a safe-haven asset or the undermining of confidence to the dollar”, Thomson Reuters GFMS notes.
As the EU has now returned as a strong player, it seems that more buying opportunities will emerge for investors who are seeking to reduce their average buying prices.
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