Before discussing the forecast of gold prices in 2010, a few predictive ground rules need to be laid. This is not a dissection of the global economy nor is it the final word in the matter. This is just one man’s opinion of what may happen in the coming months based on some technical analysis and guesswork.

As of November 29th 2009, gold prices are hovering just below 1,200 USD per ounce. This is what may happen…

2010 Price of Gold Forecast and Prediction

Prices usually reach their peak following a massive hysteria. Some investors refer to this as a climax top. Investors everywhere are drawn with fascination to the rocketing price. Defying disbelief the price continues higher. When the last of the investors, including very unlikely individuals that have never invested in their life, have pushed the price up rapidly, nobody is left to buy. What happens next is a scary freefall.

Is the price of gold sustainable at these levels? The vote is divided but many are questioning the validity of the forecasted hedging value of gold against the falling US dollar. At what point to investors realize they are merely holding overvalued albeit pretty metal in their vaults?

One estimate is that gold will trade with volatility above 1,000 dollars per ounce for the period of December 2009 until early 2010. The climax run-up could even see prices shoot to 1,500 dollars per ounce by March and to 2,000 later on. If that is the case, many fear it will be short lived. Other predicted estimates have the price falling to below 800 dollars per ounce following another short run-up.

How Can One Trade the Volatility on Gold?

Gold may continue to climb another 25 percent from its current value, or it could fall to half of its value over the next year in 2010. Remember how oil rocket and then crashed?

Instead of investing directly into the commodity at this late point in the game, many traders are purchasing future option contracts that allow them to speculate with leverage while managing risk. If an investor believes the price to still have some upward momentum, he could employ a short term bull call spread. If he thinks the price will decline he could employ the bear put spread.

As well, the investor could directly purchase gold and purchase gold future put contracts to give him upward profitability while protecting his assets.

Another method is to trade gold based stocks instead of the commodity itself. A way to trade these volatile stocks is outlined in this article.

If one is bearish on the price of gold, one merely needs to reverse each strategy. Short the gold stock or commodity futures and hedge with call options.

Wild Gold Prices Expected for 2010

While it may be impossible to foretell exactly the price of gold in 2010, one thing is certain, much volatility and manic roller coaster rides are expected. To trade this investment vehicle much caution should be taken. The forecast and prediction of gold prices in 2010 by some chart reading junkies is a short term up followed by a wild ride down.

Sources

JeeYeon Park, “Gold Will Hit $1,500 By June 2010: Strategist”, 4 Nov 2009, CNBC Stock Blog.

Philip Manduca, “Capital Gold Group Report: Gold Heading Above $2,000 by End of 2010”, 22 Apr 2009, CNBC TV Interview.