26th June 2013
Selling out of gold is not a good idea now if past dramatic falls in the gold price are anything to go by says Adrian Ash, head of research at BullionVault.com.
Though the fall at 24.5% in the last three months is the fourth worst in the last 45 years, Ash says the historical odds point to a bounce.
Ash says: “Gold priced in Sterling has now dropped 24.5% from where it stood three months ago. That’s a remarkable and painful drop for investors seeking financial protection. In the last 45 years we have only had three occasions where gold prices fell harder – in summer 1974, spring 1980, and early 1981. The last two of those three periods marked the early stages of gold’s long-term bear market, which continued for two decades as the 1970s’ inflation receded and bond markets rose with equities. It culminated with Gordon Brown’s infamous UK gold sales of 1999-2002.
“Whether or not this plunge marks a similar stage for a similar long-term decline, selling at today’s current levels doesn’t look wise for UK investors. The historical odds point to a sharp bounce ahead. Since April 1968, there have been 15 rolling three-month periods where gold in Sterling has lost 24% or more. After each of these three-month periods, gold prices rose again over the next three months, resulting in an average 20.7% increase for UK investors.”
It has provided the following performance stats for gold price movements
· Gold’s 1-month loss is now 12.8% in British Pounds
· This marks the 82nd worst 1-month loss out of 11,440 rolling 1-month periods since April 1968
· Following these losses, gold rose in the following month 73% of the time (59 out of 81)
· On those occasions when gold rose after a 1-month fall as hard or harder than 12.8%, it bounced by an average of 7.1% in the next month
· On those occasions when gold fell still further, it dropped another 6.0% on average