Gold Update, correction low will be put in place within the next three weeks

Long-term price targets are meaningless

Many commentators like to speculate on where the dollar-denominated gold price is ultimately headed. Some claim that it is destined to reach $3,000/oz, others claim that it won't top until it hits at least $5,000/oz, and some even forecast an eventual rise to as high as $50,000/oz. All of these forecasts are meaningless.

Long-term dollar-denominated price targets are meaningless because they fail to account for the change in the dollar's purchasing power, and the only reason a rational person invests is to preserve or increase purchasing power. To further explain by way of a hypothetical example, assume that five years from now a US dollar buys only 20% of the everyday goods and services that it buys today. In this case, the US$ gold price will have to be around $7,000/oz just to maintain its current value in purchasing power terms. To put it another way, in our example a person who buys gold at around $1360/oz today and holds it will suffer a LOSS, in real terms (the only terms that matter), unless the gold price is above $7,000/oz in January-2016. Considering a non-hypothetical example to make the same point, a resident of Zimbabwe who owned a small amount of gold and not much else would have become a trillionaire a few years ago, and would also have become broke.

The purchasing power issue is why the only long-term forecasts of gold's value that we ever make are expressed in non-monetary terms. For example, throughout the past 10 years we've maintained that gold's long-term bull market would very likely continue until the Dow/gold ratio had fallen to at least 5, and would potentially continue until Dow/gold reached 1. (more)