Bullion Analysts Accuracy is Bad

If you are one of those who put your trust in what the talking heads on CNBC etc. are saying, then hopefully we’ve managed to convince you of the prudence in looking at other sources of information as well for your financial decision making. If you stop listening to the static and look at the overall picture instead of day-to-day swings you will become much more successful as an investor.

But what other sources of information should you look at when it comes to gold and silver prices?

Surely the professional bank analysts must have a better understanding of where gold and silver prices are heading than the news anchors. Even though these analysts often have their banks interests as well as their own interests in mind, you would still think that they should be able to give a more accurate prediction than most people.

Let’s look at how accurate these predictions really are.

Every year analysts provide a four-year forecast for the gold price. The graph below illustrates the average of gold price predictions since 2007 by the 25 top analysts over the past 7 years.


Source: Casey Research – http://goldsilverworlds.com

As is clearly displayed by the graph analysts have predicted that the price of gold would fall every year since 2007 – and they have been completely wrong. The 2008 and 2009 forecasts predicted a gold price below $1,000 for 2011 and in 2007 the forecasts pointed to a decline from $656 to $523 by 2011. Instead the gold price rose to an average of $1572 that year – an increase by 140%.

So the immediate take-away from this information is that you shouldn’t pay attention to what analysts at the big banks and brokerage houses say of the future gold price – since their track-record is abysmal.

Forecasting in general is extremely difficult. According to some research analysts only tend to get it right about 50% of the time, which is equivalent to flipping a coin.

The broader picture here is of course that what analysts say does matter, for example to institutional investors and fund managers. To most investors it is much easier to follow the herd and act only on the recommendations that analysts provide, rather than acting on your own judgment, thereby risking being wrong and having to explain yourself.

Over the course of the last few months many have left the gold and silver exchange markets. Not only the traditional weak hands but also institutional investors. At some point when this trend reverses they will enter the market en masse – which will have a significant positive impact on spot gold and silver prices. When this happens is difficult to say, but most likely it will happen when the next leg up in this bull market comes.

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