Gold expected to take at least a year to recover

Holiday season might be good time to sell for investors who bought high

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The holiday season usually sets the stage for a spike in precious metals prices due to rising demand for jewelry. But in light of the major decline that gold has suffered this year -- falling as low as $1,192 an ounce in June -- many industry experts are predicting it could take at least one or two years to see anything close to record prices again.

For investors who bought into the market at $1,700, $1,800 or even the record high price of $1,900 an ounce in September 2011, David Morgan, founder of the Spokane, Wash.-based Silver-Investor.com newsletter, thinks the annual holiday season rally might be a good time to sell.

"If you're an average investor who bought high in the market, you're going to have to wait a few more years to get your money back," Mr. Morgan said. "Gold is a lot like real estate. For over a decade, it posted year-over-year increases, which made people think that, like the housing market, gold would only go up. That was clearly wrong and many people are paying for it now."

Gold closed Thursday at $1,307.65 an ounce.

The record price reached in 2011 was closely linked to a faltering U.S. and global economy. As traditional investment vehicles such as stocks and bonds became more high-risk, investors sought the relative safety of gold. For 12 straight years, the price of gold defied gravity, attracted wild speculation and inspired book titles such as "$10,000 Gold," by Nick Barisheff.

PG graphic: Two decades of gold prices
(Click image for larger version)

"We all know the market is random in the short term," said Mr. Barisheff, president and CEO of Bullion Management Group Inc., in Toronto. "If any number of 'black swan events' such as war, bank insolvency, U.S. dollar crash were to take place, then the price of gold would likely go higher."

But for now, Mr. Morgan said investors have been drawn away due to a higher appetite for risk, record high stock markets and a belief that the Federal Reserve will soon have to abandon its easy money policies, which have caused gold prices to remain stagnant.

"The holiday season is almost always good for gold and silver, due to the uptick in jewelry purchases -- particularly in India and throughout Asia," he said. "But this year don't expect to see a dramatic gain. At best, we could see gold head to the $1,500 level.

"So if that's at or above where you bought gold, you might want to consider selling it if you don't want to wait a few more years for a possible final rally. Gold probably won't return to the $1,900 level until 2016 to 2017. That will be the end of the current bull cycle and at the end of any bull cycle, prices usually reach their peak."

James DiGeorgia, editor of the online Gold and Energy Investor newsletter in Boca Raton, Fla., also believes it will be 12 to 24 months before the price of gold recovers from this year's severe drop.

"It's a crystal ball," he said. "A lot depends on the way the dollar moves and whether we are in an inflationary or deflationary environment. But it's not likely that gold in the next 12 months will jump to $1,700-an-ounce levels."

He said people holding gold now should be aware that the price of mining and refining it is at $1,100 to $1,150 an ounce. "We are unlikely to see prices fall below that, but extremes do happen in markets."

Robert Wiedemer, managing director of Absolute Investment management in Bethesda, Md., and author of "Aftershock," said he doesn't think the price of gold will rebound any time soon -- and there is a chance it could still go lower.

"It will be a great long-term investment," he said. "It will go well past $1,700, but not necessarily next year."

Tim Grant: tgrant@post-gazette.com or 412-263-1591.


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