Tuesday, March 4, 2014


Since January, gold price has gained 10.6% from US$1220 to the current US$1350 due to the rising tension in Ukraine as gold always favours uncertainties. For people who are still keen on holding gold as long term investment, perhaps you might want to know what is the long term prospect for gold.

Below is the 100 year old chart for gold and silver. As you can see the precious metal seems to follow this repetitive price pattern - 10 years of bull run followed by 20 years of bear run.  Historically, gold spikes in the year 1934, 1979 and 2011. After these spikes gold price would seem to follow some prolonged period of bear trend. The bear trend would start with price slump for more than 50% followed by a few rebounds and then the price would move in a horizontal trend for many years.

If history were to repeat itself, we shall take 2011 gold price peaked at US$1900 as the starting point, divided by 2 gives us US$950. This is quite a scary scenario for gold investors who are hoping that their gold will go back to the historical high of US$1900. Hence, I believe the peak should be over and we are currently in the secular bear market of the precious metal.

Below is another chart to show  the short term outlook for the gold price. In the short term, gold is bullish as it has broken above its 200 day moving average and there was a double bottom formation in the chart. This chart pattern may bring the gold price to the US$1500 level which I think the maximum that it can go as my view is that US$1200 - US$1500 is a reasonable long term price range for gold.

At the moment US$1200 is a crucial support level for gold, should it break below this level, chances are it may move towards below US$1000 level. 

The above are just my personal view on gold price based on technical analysis. I'm sharing this because I think gold is an excellent investment for long term, however we must recognise that it is a commodity which has its own inherent risk. I would advice people to hold not more than 10% of their portfolio in gold, unless the gold price did go below US$1000, then I don't mind to hold a bit more.