The plunge in gold and silver and massive outflows from popular ETFs like the SPDR Gold Trust, the iShares Silver Trust, as well as popular miner ETFs like the Market Vectors Gold Miners and Market Vectors Junior Gold Miners ETF have investors clamoring for the answer to a simple question, “How low can gold and silver go?”
There are four ways to look at it.
Traditional technical analysis
The weekly chart shows Fibonacci retracements as well as support levels.
Please click here for an updated annotated weekly chart.
Based on traditional technical analysis, the target zone is $1250 to $1425.
Similar analysis leads to a silver price target of $23.50 to $25.50.
For further explanation of the charts, please see Why gold and silver are in the dumps.
Statistical analysis
In statistical analysis, we simply take a look at gold trading data from January 1979 to April 2012. The description of this analysis gets somewhat esoteric. If you are not into statistics, do not worry, as the results have been compiled into an easy-to-understand chart.
Click here for the chart based on statistics from 1979 t0 2012.
Here is the methodology. The analysis identified episodes of price declines over periods of six months, three months, two months and on a one-month basis and derived a frequency distribution from 30 years’ worth of data.
From the frequency distribution, the probability of occurrence of major and minor declines is measured. Based on a CRISIL’s methodology, the Working Group also calculated the probability of a gold price decline in four baskets (on a six-month, three-month, two-month and one-month basis) using World Gold Council’s long-run daily price of gold in U.S. dollars from January 1979 to April 2012.
It is evident from the analysis of the past data that there is no probability of a drop in gold price of more than 40% and even the possibility of 30% or more fall is very rare in all the four baskets….Read more at MarketWatch
