We don't know.
Worse, a number of highly intelligent and recognized experts can't even agree whether gold will be priced higher or lower in three years.
Given that major disagreement among experts, who and what should an investor believe regarding the exchange of steadily devaluing dollars, euros, pounds and yen for the purchase of gold?
My solution was to create an empirical model based on several macro-economic variables, not including the price of gold. The goal of the model was to accurately replicate the smoothed price of gold as calculated with a twice smoothed moving average of monthly closing prices since 1971.
The model performed well - specifically it had a 0.98 statistical correlation with the actual smoothed market price of gold in US dollars between 1971 and 2013. The resulting graph of calculated gold prices rose from about $30 in 1971 to about $500 in 1980 - 84, down to under $300 in 1999 - 2001, and then up to about $1,500 in 2013.
Currently the model shows that gold, selling for about $1,300, is undervalued and therefore likely to move higher in coming years.
But how much higher?
The book discusses reasonable projections based on the estimated change of the macro-economic inputs to the model and then calculates reasonable or "fair" values for gold through the year 2021.
Of course the price of gold will rise above and fall below the calculated "fair" value during the next several years, but estimating the "fair" value will help people evaluate whether or not the market price of gold is over or under valued at any particular time.
The model indicated that the market price of gold at its peak in August 2011 was 30% higher than the "fair" price.
Similarly, the market price of gold in December 2013 was 26% below its "fair" price.
This "fair" value information would have been particularly valuable to those who were considering purchases of gold in August 2011 or selling their gold in December 2013.
The model accurately replicated, on average, the smoothed price of gold for over 40 years. Furthermore the model was robust. Since 1971 the world has experienced stock market booms and busts, bond market bull and bear markets, "shock and awe," occasional peace, the inflationary 1970s, the stock market booms of the 1990s, the devastation of 9-11 and subsequent wars, a housing crash, and a global financial crash in 2008. The model created accurate "fair" value estimates for the price of gold during all those market extremes.
The book is divided into three parts.
Part one explores the need for an empirical model, examines monthly gold prices since 1971, smoothed annual gold prices, the macro-economic variables used in the model, the actual formula that replicates smoothed gold prices, and future gold prices as projected by the model. It also discusses gold cycles, various ratios, and shows how those cycles and ratios support the price projections indicated by the model.
Part two addresses the larger economic environment including counter-party risk, The Fed, interest rates, QE, inflation, and central bank gold sales.
Part three encourages you to act in accordance with your individual financial circumstances and risk tolerance. It offers suggestions on how to purchase gold, where to store gold, when to buy and sell, and what a bubble in the gold market could indicate for prices.
The model has a 40+ year record of calculating a reasonable and "fair" price for gold. There is no guarantee that the model will continue to be accurate in the future, but the model is certainly more useful and objective than the opinions of many supposed experts and biased analysts who materially disagree on future expectations for gold prices.
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About the Author
About 40 years ago he did graduate work in physics (all but dissertation) so he strongly believes in analysis, facts, and rational decisions based on hard data.