Why Jim Rogers Thinks Gold Will Drop 20%

Amid all of the colorful predictions for where gold’s price is headed, like Peter Schiff’s prediction of $5,000/oz, there stands a man with a bearish sentiment – Jim Rogers. In a recent interview, Rogers pointed out that while gold may be appealing over the long term, its short term outlook is not very good. The commodity legend cited his skepticism for gold in the coming months, stating that the time to jump back into the once-soaring precious metal is difficult to predict [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].

Rogers’ hesitation to buy gold comes from its historical performance. “I’ve actually owned gold for longer than 11 years. I’m not buying now. Gold went up 11 years in a row, which is extremely unusual for any asset. I don’t know of any asset in history that’s gone up 11 years in a row without a correction” notes Rogers. Not to worry, as 2012 is shaping up to be a poor year for the hard asset, as gold has already begun its decline. Since peaking in 2011, gold prices have dropped by nearly 20% in what many would call a healthy correction. But Rogers takes things a step further and claims that he feels a natural correction for any asset is higher than gold’s current dip.

“Corrections are normal and are the way things should work, the way things do work. Having said that, I don’t know when the correction will stop. It’s normal in my experience for corrections to go down 30 or 40 percent. It’s just the way markets work”. By that logic, gold still has another 10% to 20% to drop. Calculating the predicted dip from its peak price, that would mean that Rogers is expecting gold to settle out anywhere between $1,140 and $1,330 per ounce. That being said, the legendary investor went on to ensure that he is still very bullish on gold over the next decade, but that he is not purchasing any for the time being as he feels its price to be overvalued [for more gold news subscribe to our free newsletter].

This isn’t the first correction that gold has seen in the past decade, but it certainly is one of the longest. Since 2000, the worst correction to hit the safe haven metal was a 30% dip between the end of 2007 and beginning of 2008, from which the asset promptly recovered. Due to its meteoric rise in 2011, it shouldn’t be a surprise to see gold struggling to find a base line before continuing forward. The only question that remains for investors is where the bottom is for gold, and when it’s time to buy back in. What do you all think, when will you feel comfortable buying more gold? Let us know in the comments [see also Three Reasons Why Gold Is Overvalued].

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Disclosure: No positions at time of writing.

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  • http://twitter.com/spotgoldprice spotgoldprice

    I buy physical gold and silver every month, regardless of the day price, with whatever cash is left in my bank account at the end of the month. I most definitely feel comfortable with doing that. :)