I have great respect for Jim Rickards, Sr. Managing Director for Tangent Capital, and I find that his latest King World News podcasts (click here) has a lot of valuable information. But, you can't believe everything you think you hear even from someone you genuinely admire.
Allow me to be a little bit picky. Here's a quote from the interview beginning at 18:23 sec mark: "By the way, in the last eleven years gold has hit the annual high in the first half of the year, I believe, ten out of eleven times. Check that. I'm highly certain its almost every time."
Well, that sounded interesting and tradeable to me, so I decided to check it out. I dumped the daily historical data for GLD into a spreadsheet (click Download 20120115gldhighofyear) and produced the graph that follows:
The graph provides the price of gold (using GLD as a proxy) and, the high of the that year. As you can see, the high for the year (which I presume is the same as Rickard's "annual high") occurred in the first half of the year only twice out of seven times. So, it seems that Rickards (at least as I understand him), is flat out wrong on this one. I'll be happy to retract this statement in all humility if I got it wrong or misinterpreted his statement.
The lesson I take away from this is "It's worth your time to check out as much of what an expert says as you can prior to using his analysis as the basis for an investment or trade."
Actually the above graph seems very bullish to me and here's why:
Every year for the last six years the Gold's high of the year has exceeded the previous year's high. That means we should see an all time high for Gold in 2012 (1911$+) provided the trend continues. This trend probably continues back at least a decade, but the data set I'm using only goes back to 2005.
Here's another graph inspired by Rickards' getting me thinking about annual highs:
We see that in each of the previous six years we convenient have data for that Gold ended the year higher than the annual high of the preceding year. This analysis suggests, again assuming the previous trend remains intact, that my previous forecast (click here) for the 2012 price of gold closing price of "a little over $1800" was too conservative. In the graph above, the only year where the closing price of gold was even close to the prior year's high was 2008. So, if we think (as I do) that 2012 will not have a 2008 type financial crisis and the gold bull market remains intact, then the forecast closing price for 2012 should be substantially above $1900.
The graph that follows looks at the percentage gain of the high of one year relative to the high of the prior year and the percentage gain of the close of one year relative to the high of the previous year.
Using the above graph we can estimate the high of 2012 will be between 18% and 35% higher than this year's high price giving a 2012 high price target of between $2255 and $2580. Seems high, doesn't it?
Using the above graph we can estimate the closing price of 2012 will be between 4% and 20% higher than 2011's high price with the higher likelihood of the closing price being 18% or higher (4 out of 6 years). Those prices are $1987, $2293 and $2255/oz respectively.
With this post I increase my estimated closing price of gold for 2012 to $2255/oz. It will be interesting to test this estimate with the results from 2002, 2003 and 2005. I may follow up this post with another completing the analysis.
I hope you find this discussion useful.
MontyHigh, www.worldofwallstreet.us
I mentioned this to him on twitter and he said "@Thales622 I just misspoke; meant to say "low" but said "high". One of those things. I'll clarify and correct in next interview."
No big deal. You could have just asked him
Posted by: Thales | January 21, 2012 at 08:09 PM