May, 2009 Forbes article about Gold — this is a tough business

As the physicist Neils Bohr said, “Prediction is difficult, especially about the future.”  Here’s an article from Forbes that was printed in May of this year — not too long ago, I would argue.  So how easy is it to predict the price movements of an asset?  Well, here are a few quotes if you don’t want to take the time to read the entire piece.

— “On a historical basis, gold is overvalued at the dollar’s current level, says Joel Crane, vice president of global commodities research at Deutsche Bank, making it “ripe for a correction.” Crane sees gold at $920 an ounce in the third quarter [Editor’s note: Crane was wrong] and at $850 an ounce in the fourth quarter, barring unexpected weakness in the U.S. dollar and/or equity markets. It’s been trading around $940 lately.”

— “Even if gold doesn’t push past $1000 in the near-term–and most analysts don’t think that it will–[Editor’s note: “most analysts” were wrong] bullion is still a good buy in Deighan’s eyes since he treats investment in gold coins as an insurance policy against inflation [Deighan is right].”

— “Still, Citi analyst Alexander Hacking considers gold a crowded trade. In the short-term, he expects a pull-back to $850 an ounce and doesn’t see the possibility of an inflation-driven rally pushing gold past $1000 an ounce until late 2010 at the earliest [Editor’s note: Alexander was wrong], according to a recent note.

This is not a post about the price of gold but of the difficulty of making predictions of price movements of an asset class — in this case, gold.  And remember that the quotes above are published in a respected financial publication and are by the sought-after niche experts.

I find it interesting that the title of the article is “Gold Extremists.”  It remains a mystery to me why those who invest in gold are consistently derided as “gold bugs” and “extremists” even when they have been correct for an entire decade. For the past ten years, the price of gold has increased 350%!  Meanwhile the S&P 500 is down about 11%.  How does choosing to buy gold make one an “extremist”?  In my book, those investors were just plain right.

Surely, there is a time and place for many investment strategies.  Here’s the whole article:  Have at it.


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