An industry expert, Surbiton Associates director Sandra Close has warned those interested in gold to be aware of the shortcomings of gold price forecasts being made, given the volatility of the precious metal.
With gold prices currently varying more than $US20 ($29.4) an ounce a day, price forecasting has become increasingly popular.
However, popularity doesn’t equate to accuracy, Close said at the 2019 Diggers and Dealers mining conference in Kalgoorlie, Australia’s ‘gold capital.’
“Essentially, what appears to be a reasoned forecast from a reputable source is often little more than a guess, or perhaps wishful thinking,” she said.
“Forecasting the price of anything, including gold, amounts to predicting the future. No one can actually predict the future, much as they might wish to or believe they can – that is why I never predict the gold price.”
Fund managers, stock brokers, banks and other financial institutions often employ analysts to support recommendations to their clients and investors.
This sometimes explains why some are enthusiastic predictors of the gold price and thrive on rapidly changing prices, according to Close.
“If you really could predict the future, including the gold price, why would you work for an employer? Indeed, you could simply work for yourself and make endless amounts of money,” she said.
“Many of the gold price forecasters are probably young, those of us who have been around for a long time have seen far too many surprises to fall into the trap, I’ll leave forecasting to the brave but foolhardy.”
One of the more popular tools used by technical analysts is the various methods of chart analysis, which is supposed to provide insight into the future.
“Charting is excellent for telling you where prices have been, but it will not tell you where prices are going,” Close said.
“If a particular charting technique really did work, by now we would all know about it and know what future gold prices would be.”
However, Close highlighted the distinct difference between predictions for investment purposes and the use of gold price estimates by the mining industry for project analysis and planning and operational requirements.
“You need to determine a reasonable gold price to use for the purposes of ore reserve calculations, feasibility studies, budgets, capital expenditure considerations, mine planning and scheduling and so on,” Close said.
“Of course, such a figure must be understood to be a best guess but inherently wrong.”
Close explained that the gold prices which are used for such planning and operational purposes are often based on past prices and on what appears to be the price trend at the time, despite the fact that the forward timeframe required may be quite considerable.
“Due to the uncertainty and the time spans involved, sensitivity analysis for a range of prices and other important variables, helps to highlight the vulnerabilities,” Close said.
“But given all the disruption globally at the moment, perhaps other methods such as scenario analysis may well be of additional benefit.”