Loading ...Ned Davis: $660 gold?
By: John Waggoner October 1, 2014 4:14 p
A client of respected market research firm Ned Davis Research asked the question: If gold follows its 1980s market path, what kind of gold price would we be looking at?
The answer: $660.
Share this image:From the January 1980 peak to the February 1985 trough, gold lost 65.8%, according to a note posted today by John LaFarge, commodity specialist for Ned Davis. So far this cycle, gold is down -35.7% from its August 2011 $1888/oz. peak. If it follows the path of the 1980s bear market, it lands at $660 an ounce.
Gold’s biggest foe back then is the same as it is now: The soaring value of the U.S. dollar. Gold fares best when paper money is losing its value. But the dollar has surged against the euro and the yen, in large part because U.S. interest rates, low as they are, are higher than those of other major countries. And gold, after all, pays no interest or dividends.
To get an idea of how strong U.S. rates are against foreign currencies, consider this: The U.S. Treasury’s 2-year note yields a measly 0.52%. But Germany’s 2-year government note yields -0.09%. In other words you have to pay the German government 0.09% simply to hold your money. So it’s no wonder that money is flowing out of Europe and into the U.S. dollar.
Wouldn’t it pay to be a contrarian and bet against the dollar, and for gold? Not if history is any guide, Ned Davis says. The dollar reacts well to positive sentiment, and those who stand in its way tend to get trampled. “Gold is not worth additional capital at this point. It is oversold, but is trending poorly,” the Ned Davis note says.