How low can gold prices go? Has the rebound arrived?

On April 15th, the price of gold dropped $140 in one day when Goldman Sachs drastically reduced its average price forecasts and recommended a short Comex gold position for their clients. Things have been shaky ever since.

Introduction

For many years, people have relied on gold as being a stable and worthwhile investment in an otherwise constantly fluctuating market. Back on Sept. 5th of 2011, gold reached an all-time high of $1,900.30 per ounce and was considered a mandatory component in every investor’s portfolio. Unfortunately, it dropped drastically to $1,690 the following year and is currently being sold at only $1,340 an ounce. The price of gold has been dropping quickly since it hit its peak two years ago, but most investors are more interested in the question: How far will it fall before it starts to rebound again?

Gold Fell to $1380 in Mid-April

On April 15th, the price of gold dropped $140 in one day when Goldman Sachs drastically reduced its average price forecasts and recommended a short Comex gold position for their clients. This immediately brought the price down to $1395 per ounce, which dropped even further the following day to $1380. Fortunately, less than two weeks later, Goldman Sachs decided it was time to close out the gold shorts that were previously recommended and the price of gold has been wobbling between $1,200 and $1,400 an ounce since.

Lower Price Expectations for Gold

The recent collapse in gold prices, however, caused the UBS investment bank to downgrade its price expectations for all precious metals. Gold has displayed great resilience at these lower levels in the past, which has prompted several long-term holders to actually add to positions. There are also some strong signals of converting ETFs and metal accounts into allocated holdings. For additional information on the views of the UBS in regards to the decline in gold prices; please read “Gold market needs time to heal.”

Gold Should Go Up from Here

Forecasted gold prices for the end of the year range between $1,480 and $1,700 per ounce. HSBC has the most optimistic estimate for the year at $1,700, and Mitul Kotecha (Credit Agricole’s head of foreign exchange strategy) is predicting that gold will finish the year at $1,480 and drop to $1,318 in 2014. Most experts feel gold has dropped as low as it will go in the near future, and a MarketWatch survey of ten different forecasts shows that all predictions for the average price in 2013 are higher than its current price. In the same survey, over a half of the 2014 price predictions are also above the current price of gold.

Although gold is down almost 25% since it reached its peak in 2011, there are several indicators that it won’t drop much further. It has been rebounding the last few weeks and should continue on an upward trend for the remainder of 2013. It may drop back down again in 2014, but not as low as it reached in the middle of April.

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