1999/2000 Gold Price Probabilities

October 18, 1999

In February 1998 we made a study of historic gold prices from 1979 to 1997 - which was subsequently posted to GOLD-EAGLE's Analysis section. Based upon the high, low and average annual London gold fix during the 19-year period, the numbers suggested the yellow metal had feasible certainty in reaching the $400/oz area, and more than fair probability of approaching $459 in 1998. As we all well-know it did not happen. In fact far from it.

The cardinal reason why gold's cyclic nature defied the Law of Probability last year is known by all: actions by the international Gold Cabal to purposely depress the price of gold through incessant Central Bank selling of gold reserves, and relentless gold leasing by gold producers and Central Banks. Both these very controversial activities - which nullify normal supply/demand dynamics came to a screeching halt on September 26, 1999, when 15 European Central banks announced they would severely curtail gold sales, and totally cease all gold leasing during the next five years. The Gold Cabal confessed… and repented.

Since the heretofore bogus supply of gold to the market no longer exists, it seems eminently logical the future price of gold will again be only subject to supply/demand dynamics - and therefore the long-term annual gold cycle will reassert itself.

The update of our 1998 study follows.

Yearly Price Cycle of the London Gold Price Fix

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 (albeit cyclic) 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 test period to support a preconceived hypothesis, allow us to explain our rationale for selection of the 1979-1998 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. 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 20-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 20-year period of the most recent past (1979-1998).

As we are all aware gold soared during all of 1979, culminating in its all-time record of $850 in January 1980. Since the peak 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 20-year span, it is obvious to the student of Technical Analysis 101 that the downtrend was bottoming out during the last couple of years. And although gold made a valiant effort early 1996 to begin a new bull market, Central Bank bullion dumping and mining producers selling forward succeeded in squelching the rally for another day. Hence gold remained in the wide trading band forged during 20 years - albeit with a down-trending bias.

Recent Sea-change Reversal

Not a few experts recognize a sea-change reversal occurred in the last few weeks. Gold surged more than 25% in a fortnight on extremely heavy volume. Indeed, it was gold's greatest price increase in over 15-years -- heralding a new bull market for the noble metal.

Following are the raw data suggesting inescapable observations and conclusions.

LONDON GOLD PM FIX HISTORY (1979-1998)*
Y E A R H I G H L O W A V E R A G E
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
314.60
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
273.40
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
292.90
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

 

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

  - Average annual high was $451
  - Average annual low was $342
  - Average annual average was $392
  - Average difference between yearly high
and low was 32% (basis the low value)


C O N C L U S I O N S

  1. In all years but four (1985, 1992, 1997 and 1998) gold rose to a high greater than $400/oz ($399.55 in 1995 is rounded to 400). This demonstrates a probability of 80% that gold COULD reach a level of about $400 before yearend - which implies a 25% rise from current levels ($320). This is both feasible and possible as gold just recently soared more than 25% within a two week period. Obviously, traditional volatility has returned.
  2. Since the 20-year average annual average price was $392, and market environment enhanced by the aforementioned bullish events, we believe gold has reasonable certainty in reaching $392/oz before yearend.
  3. Based upon gold's average annual high value during the last 20 years, we might see gold at $451 in the not too distant future. But since the sea-change reversal happened so recently, we might not see $451 gold until early next year. On the other hand the angst related to possibly dire ramifications from Y2K, exacerbated by a Crashing Wall Street may well propel gold to even higher levels BEFORE THE NEW YEAR… indeed, even challenge its $850/oz all-time high in the next 12 months.

 

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 soon 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

Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.

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