NDR: 1980s Gold Pattern Suggests $660/oz

Gold is one of those topics that always generates fierce pushback whenever I write about it. Yesterday’s column How Low Can Gold Go? was no different. A deluge of emails and over 150 comments soon followed.

I may post some of the more informative, vociferous and misguided comments / emails from readers later today as a public service to everyone else. But note that I find this pushback highly encouraging, as it suggests a topic that not only resonates, but is a hot button emotional issue. The lack of rationality is obviously so dangerous for investors. These last two make the subject especially intriguing to me.

One more thing: As it turns out, I am not the only one who has been skeptical on Gold since its uptrend cracked late in 2010. This weekend’s Barron’s, citing Ned Davis Research, excerpted part of a recent research report from John LaForge and Warren Pies of NDR on historical gold cycles:

“[F]rom its peak in January 1980 through its trough in February of 1985, gold suffered 65.8% losses. So far in this cycle, it’s lost 35.7% from its August 2011 peak, so if it were to follow its 1980s path, it could easily slip below $700 an ounce.

There were a number of factors working against gold in the 1980s, but notable among them was the strength of the U.S. dollar: It rose 54% from January 1980 to February 1985, versus as basket of major currencies.  LaForge and Pies write that it’s not difficult to see how the same pattern could play out again, weighing on gold. These waters aren’t friendly to contrarian investors, who usually lose out when betting against a rising dollar. Nor does it seem like a time for bargain hunters in gold, if the price is in danger of falling significantly more and pessimism hasn’t yet reached its peak.

NDR concludes: ”Gold is not worth additional capital at this point. It is oversold, but is trending poorly. Like gold, the overall commodity super-cycle looks to be dying.”

Ned Davis: If Gold Follows 1980s Pattern, Expect $660 An Ounce


Feel free to take the other side of the trade from what is widely regarded as the most astute technical analysis firm in the world . . .


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