It is possible, but not likely
Displayed below is our Gold Price simulation data. Please take into account there is approximately 522 trading days during the displayed period, There is approximately 262 trading days per year because trading does not occur on weekends and Public Holidays. This simulation is from 18th November 2018 to 18th November 2020. It should be noted it is for gold prices, per troy ounce in €.
Note: The document below is an example of simulated gold prices and displays them exactly as you will see them when using our products. If the embedded pdf file does not display correctly you can download it to your device by clicking this link.
Debts are hidden risks, but we will try to ignore them
Obviously there are many views on the price of gold. Some see a bubble in the gold, which should blow out at $ 400 per troy ounce whilst others see a revaluation of the gold price, due to existing debts at the threshold of at least $ 10,000 per troy ounce.
Let’s take a step away from all rationality, let’s ignore the fact that the price can not fall below $ 1100 per ounce due to unprofitable mining in almost all mines at that price and look at possible scenarios purely from a mathematical point of view.
There is a chance that the price of gold around 18-th November 2020 will fall to around EUR 800 per troy ounce. What would it mean when investing €1100 is easy to quantify: 800/1100 = 0.7273. So, after a certain time, we should only have something over 72% of the amount initially invested. So the question is: What is the probability of dropping to the level of €800 per troy ounce and will I be able to accept such a loss?
It is true that something unexpected can happen which would move prices up or down so fast that the resulting price will be beyond the expected range. Keep in mind that the Monte Carlo method works with randomness and price changes in the past. Logically, we can say: If in the past the price has not been affected by an unexpected event – bankruptcy of a certain country, economic downturn, natural disaster – it does not mean it cannot happen in the future. This would mean that the Simulations would vary significantly from actual developments. Such low probability situations may have a catastrophic impact on the investor, but it can also be a fairy tale enrichment. Examples from both sides are the following fictitious events:
- Mankind will be able to mine gold in space in the near future at low cost – the gold price drops
- China declares its intention to sell all US bonds and exchange profits for gold – the gold price skyrockets
Let’s assume deflation, sale of gold reserves of central banks, or perhaps the collapse of the €, collapse of the US dollar due to exponentially growing debt, collapse in markets due to high interest rates, and so on. You have to judge that there are so many options that it is better not to think about them. Otherwise, you will come to such a complexity that only one tiny error on the input (I think it would appear somewhere) will be a significant factor on the output.
Therefore, let us not take the “what if” option, but look at the prices from the simplest point of view and add a little randomness to the recipe.
What are the probabilities and simulations?
- Gold should be a conservative investment, where there is also a positive risk (a chance of price increase)
- Negative risk is not negligible
- You can set stop-loss
If you compare it with simulations for bitcoin, gold will look like a super-conservative investment. Of course, this does not mean that this assumption will actually be fulfilled.
The intention is not to get an expectation of a maximum possible profit, but an overview of the possible loss or an overview of possible limits when selling (as well as for gains and losses).
More simulations for various assets that are additionally uploaded and updated are available as click-link here.