When will gold prices fall?

Not really sure if this is a GQ or a GD. Gold crept up from $400/oz in 2005 to a high of $900/oz in 2008. As soon as Obama looked like he was going to win it went up to $1200/oz and has been holding steady at $1100/oz since the spike. What has to happen for the price to start coming down.

Increased jobs (e.g. less than 9% unemployment)?
A rise in the interest rates?
Obama curbing spending? Perhaps due to a pullout of Iraq i.e. lower defense costs?
Glenn Beck running out of pocket change?

And when it does come down, will it be a collapse as everyone bails out taking their profit or a pullback to $800 to $900 / oz?

Gold prices have to do with a near-religious Belief rather than any economic factors. You can’t forecast Belief.

It’s a belief based on the likelihood of the collapse of fiat money, which is in large part driven by expectations around inflation/deflation. You can’t forecast what will happen with that, of course, but you can expect that gold prices rise with inflation and fall with deflation.

Uh huh. And what has the inflation rate been during the gold price rise since 2008?

Or should I say the deflation rate?

My mom bought me a Krugerrand when prices were like $800/ounce. Not too long after that (in the '80s) prices dropped to $400/ounce or lower. So we had an inflationary/recessionary period when the price of gold was very high. As the economy improved, prices dropped. The economy has shown signs of recovery. So I think prices will drop in the next few years. (Though they probably won’t drop back to $400/ounce!)

I’m hoping for a massive sell-off. I traded away my Krugerrand a long time ago. I only have a Canadian one-ounce gold coin, and I’d like to get a Krugerrand to go with it. And an American one-ounce coin. And maybe some others. But not for investment purposes; just to collect.

I’ve heard one of the main rationales behind the rise in the price of gold is that people piled out of the housing market, the stock market, currencies and oil as the recession hit, looking desperately for a safe place to invest their money to weather the storm. Precious metals and US Treasuries seemed like two good options. So if the economy returns to strong growth you should see the price of gold fall significantly. Then again, that’s probably such a basic analysis it would make an economist cry, I wouldn’t say it’s worth its weight in gold.

My understanding is that government spending has a lot to do with it. With the government spending trillions of dollars that it doesn’t have, and the credit markets frozen even on a national level (see: Greece), many people expect that the government is going to start printing money in order to pay its debts. If/when that happens, the result would be massive inflation.

If you believe that Gold is at a bubble state, you should sell short now.

There’s a saying: “the markets can stay irrational longer than you can stay solvent.” I think gold prices will fall substantially, but betting on when they will fall is a fool’s game.

I think gold is a measure of people’s uncertainty over the direction of the economy. Once people are confident of the economy (if? when?), the price will probably level off and fall slowly. Unlike housing, I don’t see a massive drop. If anything, it has been underpriced until recently because there were so many other places to put your money. I bet it will go down to about $800 over a year or 3, but not for at least a year. Another thing to keep in mind, there is a world-wid market for the stuff. Just because first-world consumers may be confident later on, does not mean that people in other countries won’t find gold a very useful hedge for political or economic reasons.

Neither, really. Since the OP solicits opinions on what’s going to happen, the IMHO forum would be the best spot for it (but I left a redirect link in GQ so people can find it in either place).