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There will always an element of guesswork in gold bullion investment, just as there is with any other

Predictions 101.

November 30, 2010 – There will always an element of guesswork in gold bullion investment, just as there is with any other. For nearly two centuries academics have tried to remove the guesswork, and despite an astounding absence of success in doing so they have compiled a vast array of classic patterns to explain events in the economic cycle.

That is all well and good as far as understanding history goes, but using such patterns to predict future movement has proven to be virtually useless. A classic case in point is recent proclamations that gold bullion prices are topping out based on the formation of a “head and shoulders” pattern in the gold price. Disregarding the fact that the classic model for that pattern requires several prior years of uninterrupted growth and that the pattern should form over months (not weeks as in this case), there is still cause to question the conclusion.

A quick look at this year’s prices for gold bullion shows the pattern occurred more than once before, and the market didn’t come close to topping out. When taken in the short term the head and shoulders pattern is meaningless, especially in the commodity markets where nearly random fluctuations routinely create classic patterns.

A better way to examine current trends is to compare them with mathematical predictions based on historical data. Two of the more common techniques extend a trend line derived from either the 20 or 40 week moving average into the future, and then compare the actual price of gold bullion to the trend line. Using that method it can be readily seen that actual prices have been consistently above the trend lines, a clear indication that gold bullion prices are accelerating.

That’s remarkably strong evidence that 2011 will be another great year for gold bullion investment.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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