According to CNBC and after losing over $1 Trillion in value over the last few years……NEVER. Yet, we are a little bit more optimistic. Our case is very simple. Based on our mathematical and timing work, there will be a severe bear market (2014-2017) and a subsequent deep US Recession. Stocks will collapse, economic growth will come to a halt and the FEDs will be forced to inflate/stimulate in any way that they can. As you can imagine, Gold does very well in such a “Risky, Volatile & Inflationary” environment.
While we do not have the mathematical composite breakdown for Gold (as we do for the stock market), we can look at our stock market guidance to connect the dots. As such, we would expect the US Economy to be in an “official” recession by this time next year and FEDs talking about or already infusing further stimulus. Therefore, we would expect Gold to be approach/breaking $1,900 by the end of 2015 at the latest.
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CNBC: Will gold ever recover from its ‘$1 trillion crash’?
This week last year, the price of gold (Exchange:XAU=)suffered a 15 percent drop inside two trading days. It was a volatile year for the precious metal — 2013 finally put an end to a 12-year bull run. And that is unlikely to be reversed no matter how volatile the markets get, analysts have told CNBC.
Gold has been trading near two-and-half-week highs and is on track for its best week in a month as equity markets have been hit hard and tensions continue to mount in Ukraine.
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In the near term, analysts have said gold is an obvious play as stocks around the world have had a challenging week, with the Nikkei (Nihon Kenzai Shinbun: .N225) suffering its worst week since Fukushima and U.S. and European technology stocks seeing heavy declines . Spot gold traded close $1,319 after three days of gains, peaking at $1,324 on Thursday.
“Investors are becoming more defensive, we have seen equities come off and that is where the value of gold really shines for investors,” said Martin Arnold, director and research analyst at ETF Securities.
Read More Gold suffers worst November since 1978
But Arnold added that market volatility would ultimately not be enough to drive the price of the metal consistently higher – and this is down to Asia’s weak demand.
“We saw last year that the strong physical demand came in when the gold price slumped, but in the current lack of strong investor demand, you can’t expect very strong price gains. We expect a modest move higher this year – but see better opportunities in the commodity space, particularity with other precious metals with more industrial application,” he told CNBC.
At its peak in September 2011, gold topped $1,900. Investors who had hung on to the metal in the decade up to its all-time high would have seen a sevenfold increase in its price, or gains of 575 percent.
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Beat Wittmann, CEO of TCMG Asset Management said the metal has been treated as “nothing more than a hedge in the last two years,” but as interest rates are relatively low at the moment, the opportunity cost of gold is not too inhibitive for investors.
“There are people that don’t want to be in credit or equities for structural reasons, gold then is a valid asset class. As long as we are in a very low interest rate environment, the alternatives are not very attractive, so the opportunity cost to hold for a lot of people is still OK,” he said.
The $1 trillion crash
The collapse of the gold price in April 2013, which saw the yellow metal sink below the key psychological level of $1,500 an ounce, was what Adrian Ash, head of research at BullionVault describes as the “$1 trillion dollar crash”.
“Gold lost one-tenth of its market value on Monday 15 April alone. That wiped the equivalent value of London’s entire housing stock off the world’s above-ground gold holdings,” he said.
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“Investors buying gold and gold derivatives because they expected gold to rise for 13th year running naturally took fright. But Investors still without it might ask what they’re missing in the bigger picture now gold’s rallied 10 percent already in 2014,” he said.