I took a little time (even though I'm working 60+ hours a week on my hobby high-tech day-job) to do my own analysis of the gold market situation using my method of looking for parallels to similar situations earlier in the current gold bull market. Here's my end of last year outlook using this method:
Dec 29, 2011 - 2012 Gold Outlook Based On The 10-Year Historical Trend - MONEY QUOTE: "I expect a low around $1500 in January or February. I expect gold to end up around a little over $1800 at the end of 2012." -- NOT BAD GIVEN YEAR-TO-DATE.
Here's the reaction to this outlook on my favorite gold message board (click here). Unlike this web-site, readers provide comments on the message board.
Now is a good time for considering this because seasonally we are pretty darn close to the low of the year for the price of gold.
Now my out look is for the end of November 2012 because I'm sitting on a bunch of Dec 2012 gold call options. Here's my simple spreadsheet analysis based on looking at what happened from the end of the previous year to mid-july and from mid-july to the end of November:
Row 12 simply averages what happenned between mid-July and mid-November across the 10 years. That's a data point but averages are deceiving. If something like 2008 happens again we could see a sub-$1200 price of gold this year. YIKES! That (or worse) is a real possibility that has to be risk-managed. I don't want to blow up and go back to being a day-job wage-slave (or worse yet, unemployed).
Cell 8B is a strong data point for thinking that 2012 is not "2008-again". Gold was up nearly 15% year-to-date in 2008 while its only up 1.7% this year.
The three years that are most like 2012 in terms of year-to-date gold price performance are 2003, 2007 and 2009. 2007's mass psychology ("stronger-for-longer", "great moderation") is light years away from 2012. 2009 (immediately after the crash) is closer to the current psychology with the expectation of another crash on everyone's minds. But I think 2003 is more like 2012 than either 2007 or 2009. The crash (Internet Crash) was recent but not immediate. I remember feeling like the good times would never return (a lot like I feel right now).
So, my expectations at this point are:
- Anything can happen including major downside gold price action (e.g. sub $1000 gold price).
- Seasonally we are near (or past) the bottom (column F).
- My best guess is that 2012 is like 2003 and my outlook is identical to the Dec 29, 2011 outlook only looking to the end of November rather than the end of 2012: "I expect a low around $1500 in January or February. I expect gold to end up around a little over $1800 at the end of 2012."
CAVEAT: I have a much higher risk tolerance that most people. To work on this condition, I'm subscribed to Graceland Updates. It is my favorite subscription service right now. I recommend it. Stewart Thomson (Graceland Updates author) considers this post's kind of "analysis" to be idiotic and considers the use of leverage and my use of call options (10% of networth on in-the-money options) to be lunacy. Two of his favorite refrains (which I find really valuable) are:
- "This is a super-crisis... trade smaller than you think reasonable".
- "A crisis has an end even though is need not have a solution".
Best wishes to you, dear reader. Thankyou for dropping in even though I'm not posting that frequently.
P.S. Here's a graph of the results of extrapolating mid-July to end of November in graphical form: