Is charting useful for predicting gold prices?

In recent months gold prices have swung significantly as world events have influenced investors’ moods. No wonder dozens of “analysts” continue to try to forecast future prices. In fact, a review of stories commenting on gold suggests that about half of those written concentrate on what is happening, or has happened, in the gold market. The other half focus on where prices are going in the future. We at Surbiton Associates never make predictions of what the price will be. We leave that to the technical analysts/chartists and to the younger generation who think they know everything. Years ago at Diggers & Dealers, the well-known Canadian mining entrepreneur Robert Friedland was asked what the price of gold would be at some time in the future. His reply was to the effect that: “You are asking me to predict the future. It is impossible for anyone to predict the future. Only God knows the future; but remember, She may change her mind.” While his comments went over the heads of most of the male audience, Friedland was perfectly correct. If anyone could accurately predict the future, they would be in great demand. It would not be long before they would be as rich as the legendary Croesus. Furthermore, they would be able accurately to predict the solutions to all the world’s problems. Their investments and betting activities would be immensely profitable and it would not be long before they would have all the money in the world. Also, if they could predict the future, why on earth would they ever bother to work for someone else? Why would they write stories and produce graphs telling the world where gold prices will go? Therefore, it follows that trend lines on price graphs suggesting that there is a “support” level here, or a “resistance” level there, are of little use. In fact they are simply wishful thinking or complete guesses. In my experience, if prices break through the technical analysts/chartists’ levels of support or resistance (as they often do) then these levels are simply fictitious. The same applies to Fibonacci advances and retracements which are often used in support of such predictions. Some “forecasters” even believe they can predict gold price levels of support and resistance to ridiculous levels of accuracy. I have seen forecasts quoted as accurate to the single US cent. When you are dealing with a commodity price of about $US2400 ($3580) per ounce, this is making an estimate accurate to one part in 240,000! Just look at some recent events that affected gold prices but were not predicted by the technical analysts/chartists. On October 7, 2023, Gaza-based Hamas captured about 250 Israeli and foreign hostages. In the next 10 days, the price of gold rose by almost $US170 per ounce. I do not recall seeing any “analyst” who predicted that event. Certainly both Mossad and Aman, two of the Israeli intelligence organisations, did not see that event coming, neither did the US Central Intelligence Agency. In June this year, those “analysts” also failed to predict the news that the People’s Bank of China had ceased buying gold in May after 18 months of continuous net buying. The report coincided with jobs’ figures from the United States which indicated that the US economy was in better shape than expected, suggesting that any reduction in interest rates could be delayed. As a consequence of both factors, gold prices declined by about $US80 per ounce in one trading session. In mid-July the gold price hit an all-time high of about $US2480 per ounce. The gold price easily sliced through all of the “resistance” levels from about $US2400 per ounce and higher. If such “resistance” levels could be exceeded so easily and so quickly, obviously there was little resistance. However, graphs of commodity prices can be useful. They are great when you want to know where prices have been but when they are used to predict where prices are going, they are of little use. Investors putting their faith in technical analysis/charting to predict the future is akin to trying to drive and steer a car, only by looking in the rear vision mirror. Jim Pollock is a director of Melbourne-based gold industry analysts Surbiton Associates.