Gold Forecast: Could Prices Continue to Soar Higher Over the Next Decade?

August 6, 2020
Analyst, Author, & Founder @ Dohmen Capital Research

gold analysis

Once dismissed by notorious investors like Warren Buffet as a “valueless” investment, gold has quickly moved to the forefront of conversation as it has become one of the best performing assets this year.

As of the time of writing, gold prices have skyrocketed, climbing up to the price targets we set earlier this year and then exceeding them. Gold has now soared past its prior all-time highs around $1930/oz., originally set in 2011, to trade above $1990/oz. In fact, gold futures contracts have completed an amazing 14-day winning streak, and have surpassed $2050/oz. in intraday trading.

Even the high-flying NASDAQ, which staged a historic rally and has surged to all-time highs of its own, hasn’t come close to beating gold on a year-to-date basis:

With all the attention gold is seeing now, it’s no wonder someone not invested in gold might feel like they’ve been missing out. Is there any time left for investors who missed out to participate?

It’s times like these, when bullishness is at its peak and the case for gold seems like it could only get stronger, when due diligence and careful analysis will pay off.

Gold’s True Value in a Portfolio

As we explain in our new free report, “Why Gold Could Rise for the Next 10 Years,” the first thing investors should understand about the gold markets, which are the trickiest ones we know, is that they operate in a fundamentally different way from the stock market. Gold, unlike stocks, is a store of wealth, much like any other currency.

While it is of utmost importance that investors understand gold’s fundamental role as a hedge against inflation, gold markets are not immune to human emotion and psychology, which can have just as strong an effect, if not more, than the fundamentals.

A hedge against inflation is not a hedge against crises, however, as many gold traders unfortunately learned earlier this year:

While gold significantly outperformed stocks during the historic February to March crash, it nonetheless saw a drawdown of 14.8% in only a few days while stocks plunged by more than 35% (S&P 500). The buying opportunity that emerged afterwards, however, highlights gold’s true value in a portfolio as gold has surged to a gain of more than 30% thus far in 2020 alone.

Gold, Central Banks, and Liquidity

Much like they did in 2008, central banks stepped on the monetary accelerator after the crash, purchasing massive quantities of securities in order to prevent a liquidity crisis and help stabilize (and stimulate) the financial markets.

Investors who understood gold’s true value as a hedge against inflation and currency risk were eager to buy in. Textbook economics would suggest that unprecedented new levels of monetary supply will erode the value of the dollar, making precious metals far more attractive as a safe store of wealth.

Indeed, the last time gold hit an all-time high was in 2011, after gold prices rocketed upwards as investors began to fear the unforeseen effects of this new quantitative easing program on the value of the U.S. dollar.

The hyperinflationary episode that many feared, however, never came. And just as spectacularly as prices shot up, they came back down shortly after. After hitting a top in 2011, the price level tried and failed to go higher, eventually reversing course and plummeting over 20% in only two and a half weeks.

This is an example of what technical analysts call a “bump and run reversal,” as shown in the chart below from mid-March through October 2011:

Everyone is betting that the Fed will continue to create more money. But between the banks that hoard it in their reserve accounts and the closed businesses burning through the borrowed cash (without creating any new jobs), how much of that printed money will find its way to people?

Investors are piling into gold, fearing hyperinflation. But is this the right move? Probably not, especially since gold hasn’t been spared from the flood of speculative activity. Technical analysis suggests that the top is imminent.

Our Forecasts on Gold and Our Long-Term Cycle Study

A long-term study we performed in 1980 correctly predicted a 20-year bear market cycle that ended with a low for gold prices in 2001. The same study also forecasted a secular bull market which would prevail until 2030. As a result, the prospects for gold are good over the long-term, but does that mean investors should buy now?

The current set up we’re seeing now is eerily similar to what we saw at the previous high, back in 2011. The “bump and run reversal” pattern, popularized by technical analyst Thomas Bulkowski, is indicative of the final stages in a rush of speculative activity. We show it on the daily chart of GLD (ETF for Gold) below:

Gold prices held in a steady trend beginning on June 8th – this was the “lead-in” phase of the pattern (purple line). On July 20th, however, prices followed a new trendline, shown in light blue on the chart, which was at a significantly steeper angle. This is the “bump” phase. Eventually, the bump will rollover as speculative buyers are completely exhausted. Then, prices will typically enter the “run” phase, plunging down below the lead-in trendline.

 

Gold’s Bull Market

Enter this market at your own risk. We are still bullish long-term on gold prices, expecting a secular bull market to continue until 2030. But there should be sharp correction first.

Again, gold is one of the trickiest markets we know, which is why we’ve made our latest in-depth analysis of this market available free in our Special August 2020 update to our Gold Report, “Why Gold Could Rise for the Next 10 Years.”

This exclusive report provides our complete analysis and builds on research that we began last year when we first saw signs that gold was ready to climb higher.

Get your copy of our latest report today to learn why Gold has rocketed to new all-time highs recently, the most important factors for Gold right now, our analysis on the longer-term and shorter-term trends, the similarities we see between now and when Gold hit its previous record high in 2011, and key price levels to watch on Gold.

Get your free copy today by clicking this link: Get My Free Report

Wishing you successful investing,

Bert Dohmen, Founder
Dohmen Capital Research
DohmenCapital.com

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Bert Dohmen is a professional trader, investor, and analyst. As the founder of Dohmen Capital Research group and Dohmen Strategies, LLC, he has been giving his analysis and forecasts to traders and investors for over 43 years.

He has been a special guest on CNBC, Fox Business News, and CNN, among others, and his analysis has been featured in some of the best known and reputable investment publications including the Wall Street Journal, Money Magazine, Barron’s, Future’s Magazine, and Forbes.

His contrarian analysis and perspective on markets can be found in any of Dohmen Capital Research’s landmark publications, where you can read his fundamental and technical insights and forecasts. These include the Wellington Letter, an award-winning comprehensive overview of the markets and macroeconomic trends, the Smarter Stock Trader and Fearless ETF Trader, which are geared towards short-term traders seeking to gain an edge, and the HedgeFolios active investing service, which allows individuals to quickly and easily implement replicate five model portfolios, each with their specific risk objective.

Bert Dohmen is also the author of several books on the 2008 financial crisis and the Chinese stock market crash of 2015, including Prelude to Meltdown, Financial Apocalypse, The Coming China Crisis, and The China Crisis Is Here.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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