1998 Gold Price Probabilities

Sometime ago we ran across an interesting table showing the annual high and low for the London PM gold fix from 1979 to 1996. Subsequently, we updated the table, and developed the following 1998 gold price prediction from it.

Although our price determination can hardly be considered an analysis de rigueur, it nevertheless does demonstrate a meaningful view of the yellow metal's lackluster price trajectory during the last two decades of dramatic price increases in most other investment securities.

In order to reduce the risk of being accused of selecting a particular period to support a preconceived hypothesis, allow us to explain our rationale for selection of the 1979-1997 period. Firstly, we did not take into account the years just prior to 1979, because the astronomical rise in gold prices was - in our opinion - not representative of the 'modern era' of gold, dominated more by central bank strategies than by supply and demand dynamics. Besides, the years just prior to 1979 would have only skewed the curve - with a definite bias toward forecasting higher future gold prices. Secondly, the selected period represents the most recent past to the present, and therefore will probably exert more influence upon the near future. Finally, any 19 year statistical record should be mathematically significant to provide some reasonable lines of probability. We do not pretend to make a gold price forecast, but rather just show what past performance is suggesting based upon the annual averages covering a 19 year period of the most recent past (1979-1997).

As we are all aware gold soared during all of 1979, culminating in its all-time of $850 in January 1980. Since that moment of gold mania the noble metal has basically been in a wide trading band with a down-sloping bias. However, when one stands back far enough to view the entire 19-year span, it is obvious to the Technical Analysis 101 student that the downtrend bottomed out in 1993 at $325 per ounce - with a slightly lower bottom retest of 278 in January of this year. And although gold made a valiant effort early 1996 to begin a new bull market, central bank bullion selling and producers selling forward succeeded in squelching the rally for another day. Hence gold remains in the wide trading band forged during 19 years - albeit with a down-trending bias.

(*) Source: World Gold Council

Since it is impossible to predict when the gold bull will again rear its noble head, we will examine the actual price range characterized by the trading band, delineated by the annual high and low values of the London PM fix.

Normally we would have deleted extreme highs and lows in order to normalize the data - eliminating numbers which unduly skew the average results. However, the few extreme values seemed to have balanced at both ends - therefore, we used all period data.

S U M M A R Y