Can Gold Go Higher?

I’ve done a number of interviews on gold recently and the number one question I get most from reporters is—can gold prices go higher?

My answer is yes.

Short-term, “record gold prices” are a bit of a misnomer. On an inflation-adjusted basis, gold’s real record price would be over $2,300 an ounce.

Looking at our oscillators, gold appears to be far from overbought. The chart shows the 60-day oscillator for gold (yellow) and the U.S. dollar (green) for the past 10 years as of August 31. One standard deviation represents a 7.3 percent move in gold prices.

Despite its recent run, gold was down 0.38 standard deviations as of the end of the month. More importantly, we’re not seeing the huge price spikes that are typical when investments get overheated.

Long-term, I think gold prices could double over the next five years. If this happens, the effect on gold stocks could be tremendous. If gold manages to double over the next five years we could see the values of some miners triple.

This would not take place in a straight line. Investors must be aware of the volatility inherent with these investments. Assuming normal historical volatility, these stocks could up or down 40 percent over any 12-month period.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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About Frank Holmes 282 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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