This “rule” states a number of things, including the concept that 80% of something comes from 20% of the causes. That’s the basis of a plethora of applications, like 80% of people control 20% of the wealth, or more importantly to us, 80% of price performance occurs in the last 20% of a trend.
This trend can be applied to bull markets. When a market is climbing, it can reach a point of euphoria, which causes a parabolic increase that is driven by overwhelming optimism. After the buying momentum calms down, the smart money will have distributed.
With the assumption that the gold market follows the Pareto principle, the price target is $8,300 by the spring of 2015. One way to trade this phenomenon is to buy gold futures or an ETF that tracks the futures. Another way that is slightly less exposed to the direct movement of gold is to buy companies that are involved in the gold industry, like miners.
Scotia Capital forecasts
In its recently published Gold Quarterly Review, Scotia Capital forecasts an average gold price of $1,750/oz for 2012 to 2014, $1,500/oz in 2015, $1,400/oz in 2016, and $1,200/oz for 2017 and beyond.
We expect high levels of volatility in the gold price to continue into the foreseeable future and expect the gold price to perform better following the summer vacation season (seasonally a weak price for gold),
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