Gold’s Surprising Year-End Target

12/05/2011 11:19 am EST

Focus: COMMODITIES

How long could it be before we see Gold 2,000? The answer provided by veteran commodities trader Ira Epstein could disappoint some gold bulls.

Gold, obviously, is on the top of a lot of people’s minds, even if you’re not trading it directly. A lot of traders are watching it to see what is going to happen with the economy and the overall global market. Our guest today is Ira Epstein to talk about where he thinks it’s going here at the end of 2011 and into 2012. Ira, what are your thoughts here as we finish out the year?

I did a study recently, and if you look at the close of July 31, and you go to the end of December, and I’m talking the last trading day of the year…from 2001 up until we don’t know what this year is going to be, only one year did gold not advance in price, and that was 2008, when obviously everything hit the fan and…people were selling. They just wanted cash.

The situation now isn’t that far away. If everything doesn’t hit the fan, and if Europe follows through with what they said they’re going to do, and if the market believes what they’re going to do, I believe gold will end up higher than $1,621.70 at the end of December.

The analysis that I did showed that a typical gain ran anywhere from 5% to 20%. Now I don’t think that 20% is in the cards just yet. I say that because in order to make that happen, you have to have one of two things.

Either the inflation scenario bites hold, and in order for that to happen we probably need to see better psychology in the markets. We need to see the US really believe that things are turning around. We need to probably get the jobs programs at least piercing—something, it’s doing nothing right now. There’s a lot of talk, there is no action.

In Europe, obviously, it’s got to get beyond talk, it’s got to get to doing it and then making people believe that they’ve done it. That will take awhile. I think more than likely gold in that 5% to 8% area from that $1,621.70 level is likely. I’m not looking for a crash.

Are you surprised that it’s taken gold in the middle of the year back a little bit? We seemed to retreat. Are you surprised it’s not at $2,000 already, with all the money we’ve printed and this idea that inflation is around the corner but we just haven’t seen it quite yet?

I wrote an article that I thought that gold looked to me like real estate for awhile. Everywhere that I went, every party, I’d go for grooming, wouldn’t know it, but I’d go for grooming, and what would happen is people would say, "What about gold? It’s going higher."

Whenever you see that, whenever you see the news media flooded with gold ads and it’s got to be part of your portfolio, and you’re watching certain commentators on TV, it’s got to be part of it, it’s a warning sign. You’re probably late to the party.

What gold did is, it used that May though June sideways action to launch from there and it took off from the high $1,500s up to $1,900, and I believe that things move in a plateau. So the plateau now is the market found the $1,920 level to the $1,700 level one plateau. It then went sideways for a bit, and then fell to $1535.

Now I think the range is roughly the mid-$1700s down to the low $1,500s, and if 1535 is taken up you can’t argue that we might not go down. Maybe we’ll get to the mid $1,400s. That could happen.

Is gold good long-term? Very good, because we’re not going to stop printing money. Ultimately, what we all want is inflation. It’s much easier to control inflation than stagflation and deflation.

Alright, Then finally, is there a technical analysis tool—whether it be Fibonacci or Elliott Wave or something—that you like to use on gold charts?

I prefer to use one of several. I use what’s called a swing line, which is still Dow theory. A trend is made on an uptrend—higher highs and higher lows. A downtrend is lower highs and lower lows.

Then I put moving averages, the 18-day moving average of closes, and one of the rules is that if the market is under that 18-day average, you are looking for potential sell signals with that swing line. If it’s over, you’re looking for potential buy signals.

The market is sort of in no man’s land trying to figure out what to do next. We’ll see where it goes.

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