1998 Gold Price Probabilities

February 1, 1998
Founder & Chief Editor of Gold Eagle

Sometime ago we ran across an interesting table showing the annual high and low for the London PM gold fix from 1979 to 1996. Subsequently, we updated the table, and developed the following 1998 gold price prediction from it.

Although our price determination can hardly be considered an analysis de rigueur, it nevertheless does demonstrate a meaningful view of the yellow metal's lackluster price trajectory during the last two decades of dramatic price increases in most other investment securities.

In order to reduce the risk of being accused of selecting a particular period to support a preconceived hypothesis, allow us to explain our rationale for selection of the 1979-1997 period. Firstly, we did not take into account the years just prior to 1979, because the astronomical rise in gold prices was - in our opinion - not representative of the 'modern era' of gold, dominated more by central bank strategies than by supply and demand dynamics. Besides, the years just prior to 1979 would have only skewed the curve - with a definite bias toward forecasting higher future gold prices. Secondly, the selected period represents the most recent past to the present, and therefore will probably exert more influence upon the near future. Finally, any 19 year statistical record should be mathematically significant to provide some reasonable lines of probability. We do not pretend to make a gold price forecast, but rather just show what past performance is suggesting based upon the annual averages covering a 19 year period of the most recent past (1979-1997).

As we are all aware gold soared during all of 1979, culminating in its all-time of $850 in January 1980. Since that moment of gold mania the noble metal has basically been in a wide trading band with a down-sloping bias. However, when one stands back far enough to view the entire 19-year span, it is obvious to the Technical Analysis 101 student that the downtrend bottomed out in 1993 at $325 per ounce - with a slightly lower bottom retest of 278 in January of this year. And although gold made a valiant effort early 1996 to begin a new bull market, central bank bullion selling and producers selling forward succeeded in squelching the rally for another day. Hence gold remains in the wide trading band forged during 19 years - albeit with a down-trending bias.

LONDON GOLD PM FIX HISTORY (1979-1997)*
Y E A R H I G H L O W A V E R A G E
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
362.15
414.80
399.55
402.00
414.00
359.60
403.00
423.75
415.80
483.90
499.74
438.35
340.90
405.85
509.25
481.00
599.25
850.00
512.00
283.00
367.40
372.40
370.00
325.00
330.35
344.24
345.65
355.75
395.30
390.00
326.55
284.25
307.50
374.25
296.75
391.25
481.50
216.85
322.58
387.87
383.79
386.00
361.00
343.76
362.19
383.47
381.44
436.93
446.45
397.87
317.26
460.44
424.18
375.79
459.71
612.56
306.68

(*) Source: World Gold Council

Since it is impossible to predict when the gold bull will again rear its noble head, we will examine the actual price range characterized by the trading band, delineated by the annual high and low values of the London PM fix.

Normally we would have deleted extreme highs and lows in order to normalize the data - eliminating numbers which unduly skew the average results. However, the few extreme values seemed to have balanced at both ends - therefore, we used all period data.

O B S E R V A T I O N S

  - Average annual high was 459
  - Average annual low was 346
  - Average annual average was 396
  - Average difference between yearly high
and low was 33% (basis the low value)
 

C O N C L U S I O N S

  1. In all years but three (1985, 1992 and 1997) gold rose to a high greater than 400 (399.55 in 1995 is rounded to 400). This demonstrates a probability of 84% that gold will reach a level of about 400 during 1998 - which implies a 30% rise from current levels (304). This view is supported by the fact that the overall average of yearly average prices is 396. Therefore, the probability is likely.
  2. Admittingly, based upon a leap of faith that gold indeed bottomed on January 12th this year at 278, and premised on the average volatility from low to high holds (33%), the data would project a price of 370. On the other hand if gold's 1998 high reaches the average annual high over the 19 year period, we are talking 459.
  3. The reader should appreciate that all statistics over time tend to return to the mean. The statistical backdrop accrues much greater significance viewed with an eye to the Asian currency crisis, the Domino Effect slowly sweeping to foreign shores worldwide, and especially on the 'year-eve' of the EMU birth. It is this analyst's considered opinion that the EMU WILL BE STILLBORN IF IT IS NOT BACKED BY GOLD... backing it with the greenback is illogical and counter-productive, and would not afford the financial and monetary independence Europe seeks. For the EMU to inspire confidence among international business entities, it must establish a solid non-fiat and non-political base. Only one currency meets all these criteria: GOLD.

 

S U M M A R Y

Based upon gold's performance during
the last 19 years, the yellow metal has
feasible certainty in reaching the 400
area, and more than fair probability
of approaching 459 in 1998

Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will be recognized as legal tender in all 50 US states and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

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