Of all the questions we get, this is undoubtedly one of the most frequent. With gold prices near their high, people want to know what the “fair” price for gold should be.
Many people who try to answer this question have strong economic or political reasons for their opinions… and their answers are based more on wild speculation than any kind of real analysis. And others are confused and just want to cut through the bullion price confusion.
However, today I read a refreshing — and reasonably simple — article that attempts to answer this question on the fair price of gold on the 1stmillionat33.com blog. I recommend you check it out.
Perhaps the most interesting part of the article is the paragraph on “long-term” investing:
“I also believe that the inflation-hedging power for gold is valid, but it needs to be judged from a very, very long term (way beyond 20 years from 1980 to 2000), just like the argument for housing prices always go up or stock prices always go up in the long term. In fact, all of them (gold/house/stock) do go up in the long term, but the only problem is that we humans only live for about 100 years, out of which we may earn and accumulate for some 40 years, and invest for just 20/30 years at best. The true “long-term” (in the order of 100 years) is simply too long for us. That makes all the difference in the whole world when it comes to “investment.” Depending on the era that we were born, we may or may not enjoy the prosperity at our respective ages.”
This definition of long term is interesting and contrarian. It reminds me of the joke about a new real estate investor who was told the value of his house had gone down. He responded: “Down? What does down mean???”
Unfortunately, too many stock, real estate and gold investors are like that today.
Of course, the real question is whether or not the price of gold right now is too high. Will it go up more or will it drop?
“Based on all short-term technical indications, I think gold will soon come to a short-term top, possibly exceeding the last high. For the time frame, I would say probably give or take one to two weeks. My own actions in this market have been mostly neutral. Try to buy the next dip if you can catch the break.”
I believe it’s very difficult to predict the future, so I don’t try to time the market or make short-term investments (unless I’m playing, and that’s with no more than 3% or 4% of my investments).
If I had to go out on a limb and make a prediction, I’d agree we may be close to a short-term high, but I think in two or three years people will be very happy with any gold investments they make now.
What are your thoughts on the “fair” price of gold? Share your thoughts on gold prices by commenting below…