What are the Best Approaches for Long-Term Gold Futures Price Forecasting?

Author: Mark O’Brien, Senior Broker at Cannon Trading Co, Inc.

There is no easy answer to what the best strategy is to predicting price movement in gold futures, much less any other commodity.  Given that rather glum starting point, there are approaches that analysts and economists use to forecast prices.  One most commonly employed is the use of broad-based commodity indexes – in which prices of food, energy, other metals, lumber, etc. are aggregated to gauge overall commodity price inflation – or the lack thereof.

Another strategy is to look for trends in the economic measurements of major developed and developing countries, such as business and consumer confidence, retail sales, interest rates, production of energy products (unleaded gas, heating oil, jet fuel, natural gas) and industrial metals (steel, aluminum).  These can also be aggregated to provide a broader reflection of global inflation.

A third strategy is to look at exchange rate fluctuations of mainly commodity-exporting economies such as South Africa, Chile and Argentina where fundamental commodity products represent a large portion of economic output and earnings on exports.  The argument is that fluctuations in global commodity prices can have exaggerated effects on those countries’ exchange rates which can anticipate future adjustments in those countries’ commodity production and thus, future price movement.

Yet another strategy is assessing the available supply/demand data for gold.  This often boils down to measuring the supply of gold coming from mine production and industrial recycling/refining figures of individual countries.  On the demand side, signs of potential price movement are gleaned from national developments on the wholesale and retail manufacturing sectors, including jewelry fabrication, mint acquisition and central bank demand.  More recently, the publically available data on in- and outflows from gold-backed Exchange Traded Funds have been tapped to predict future price movement.

There is no obvious winner among these strategies, which actually can be seen as indicators in and of themselves.  They suggest any predictions – especially those seeped in excessive confidence, or ones seeing extreme / long-term persistence, or sever trajectories – are not ones one should use as a basis for taking out-of-the-ordinary commitments / risks.

Disclaimer: Trading commodity futures and options involves a substantial risk of loss.

The recommendations contained in this letter are of opinion only and do not guarantee any profits.

There is not an actual account trading these recommendations.

Past performances are not necessarily indicative of future results.