gold price prediction

Gold Price Prediction

The purpose of this essay is to explain the science and art of predicting gold prices. Science, because some ways that can be used to proceed are of a scientific nature (like gold demand and gold supply analysis) and art, because some ways that can be used to proceed are subjective and depend on the individual skill of the gold analyst (like drawing support and resistance lines). In most cases the former corresponds to fundamental analysis and in most (but not all) cases, the latter corresponds to technical analysis).

In general, the longer the term for which one would like to predict the gold prices, the more important are the fundamental issues and the shorter the terms for which one would like to predict the gold prices, the more important are the technical issues. It seems fair to say that as far as predictions for the following years are concerned, one should focus on the fundamental issues and treat technical analysis as an addition (long-term cycles and long-term trends are still important) and in the case of the upcoming weeks, one should focus on the technical issues and only use fundamental details as background.

There is no clear distinction between short- and long-term and there are time frames that fall in between the above. One could trade intra-day moves, very short-term moves (daily moves), short-term moves (weekly moves), medium-term moves (ones that take few months before they are over), and long-term moves (many months and years). Which of these terms for trading / investment one chooses is a different matter (in short, diversifying between both approaches seems to provide the greatest benefits), but the point that we would like to make is there is no fine line between them and that they relate to each other in a specific way.

If one wants to predict the gold price on an intra-day basis, one should still pay attention to trends and signals for gold that are visible on the short-term and medium-term charts. The analysis of long-term chart is also useful, but there will be something interesting in them only on rare occasions. The point is that the resistance and support levels that are based on longer-term charts are still important for shorter-term. If there is strong, long-term support/resistance, say $5 from the current gold price, the former is still likely to trigger gold’s reversal once it is reached.

If the shorter-term chart suggests that a move that is bigger than $5 is likely (say, a $20 price swing), the above-mentioned resistance/support $5 from the current gold price would still be likely to stop gold’s price move and thus the short-term signal would not be as reliable (and the trade would not be as potentially profitable) as it may seem based on the short-term chart alone.

It usually doesn’t work both ways – the factors based on longer-term charts are meaningful in case of short-term trades, but in the case of longer-term trades, the short-term factors usually don’t change much. For instance, if one expects a $100 gold move in the following weeks, would it really mean a lot if the immediate-term gold chart pointed to a $3 corrective move beforehand? Not really – it would be more a case of price noise.

Gold Price Forecast and News

There is one very costly myth regarding making gold price forecasts and that is that it is a good idea (or the only way to do so) to predict gold prices by reacting to individual news or by trying to profit on the expected price changes before the news. Naturally, it can be done every now and then, but please note that a broken clock also shows the proper time twice a day.

The problem with reacting to gold news is that the news and expectations of the news are practically immediately factored into the current prices and thus it is rather impossible to gain any edge through the reaction. One can be quick, but the odds are that one will not be quicker then powerful computers located right next to the stock exchange that are designed to react to “breaking news” as soon as possible. Not only is the news itself priced in almost instantly, it is the same with the changes in expectations. If the market views that a certain outcome is now more probable, the price will immediately reflect that. So, how could one generate profits over the long run by trying to outperform these near-instant reactions? That’s right, the chances are slim.

The approach that allows one to outperform powerful computers is using the thing that the computers can’t do as well as people – predicting the gold price using subjective technical means and through synthesis of facts from various sources (sentiment analysis, technical, fundamentals, cycles etc.) One way that news can be useful for making gold forecasts is through estimation of gold’s relative strength of reaction to a given piece of news. If gold should move in a given way (say, rally) based on something important (say, announcement of quantitative easing by the European Central Bank) and it doesn’t or does react but in a way that appears odd (gold rallies only a little or even declines). The above would indicate that gold is ready to decline if it doesn’t rally to such a bullish fundamental piece of information.

Expected Gold Rate Tomorrow

When predicting the gold price for the following hours or minutes (in other words estimating whether gold rate will increase or decrease in near future), one could use 30-minute or 15-minute charts, but also 2-hour, 4-hour and daily charts for detecting more important resistances and supports that could invalidate the short-term analysis. As discussed above, the technical factors are critical when determining the gold price for tomorrow, whereas fundamental analysis is of rather little importance.

Long term Gold Price Forecast

Medium- and long-term charts are more specific as the broadest point of reference is not the charts themselves, but the fundamental analysis of the gold market. In this case, the fundamental points could trump most technical techniques. For instance, it was only a few years after gold started its bull market (the bottom was in 1999) when the gold Elliott Wave Theory enthusiasts started predicting imminent collapse of the gold prices that would take gold hundreds of dollars lower. It didn’t materialize for years and there is a good reason for it – the gold fundamentals were extremely favorable (on a side note, the 2008 slide was rather artificial as it was driven by liquidity squeeze in the investments funds that had to close the positions – also in gold – to meet their margin requirements).

Consequently, while predicting major price moves in gold (for hundreds of dollars), one should always check the fundamental picture and see how it fits the chart-based price prediction. This doesn’t (!) mean that charts are worthless – conversely, there’s nothing else that can help one estimate the bottoming or topping prices of gold. It simply means that fundamentals can say what is likely to happen in the following years and technicals can say how it’s likely to happen and what is likely to happen in the meantime.

Gold Rate Forecast India

We received quite a few questions about gold price prediction in India, so we would like to take this opportunity to address this issue. Generally, the same rules apply to the gold price prediction in India as to the gold price prediction in terms of the US dollar. In particular, the short-term price changes should be very similar in terms of both currencies, so the technical factors affecting the USD gold price should be extremely useful also in terms of the Indian rupee. In the case of the long-term gold rate forecasts in the Indian rupee, the USD:INR currency pair should also be taken into account.

Summary

All in all, depending on the term for which one aims to predict the gold price, they should use different sets of techniques. Now, the question becomes what about each of them is particularly useful.

Regarding the technical methods, we already wrote about them extensively about on another page, so we don’t want to repeat ourselves – you will find all the key details on our Gold Trading Tips page.

Regarding the fundamental techniques, we also discuss them more thoroughly in other parts of our website – you will find a more detailed explanation in our Dictionary (gold’s fundamental analysis). We also wrote an entire series of articles devoted to gold’s fundamental drivers on our gold Market Overview section (reports were posted between July 2015 and May 2016, but they remain up-to-date today as well).

Gold Forecast 2017

In the case of predicting gold price for 2017, the same rules apply – both fundamental and technical issues need to be considered. Since the situation is constantly developing, we are not able to provide it in advance for the entire year. We do provide updated gold forecasts on a continuous basis, though.

If you’re interested in a very up-to-date and timely gold price predictions and analysis, you will most likely enjoy our Gold & Silver Trading Alerts – we discuss the short-term price trends and predictions along the long-term direction of the gold price and we do so on a daily basis.

The above links include quite a lot content and you may be short on time at the moment for reading those words, so here’s what may be the best idea at this time – sign up to our free mailing list. You’ll be able to get back to any above link later on and at the same time, you’ll stay updated with our free analysis (including daily discussion of gold news and gold-related links) and you’ll also get several extras as a welcome bonus. Also, it’s risk-free as if you ever want to stop receiving our messages, it will take just 2 clicks to unsubscribe. Sign up today.

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