The price of gold peaked at just over $1,900 per ounce in the fall of 2011.
He was right.
Gold prices entered a bear market (down 20% from its high) in April. And on June 27, they touched $1,200.
In a phone interview this week, Rogers explained to us how he arrived at the $1,200 figure.
He also offers his outlook for gold as it continues its complicated bottoming process.
Business Insider: Two years ago, you told us you could see gold going to $1,200. How did you arrive at that level?
Jim Rogers: I'm sure it was all based on intuition from Business Insider, but gold had been up at that point 11 - 12 years in a row which is an anomaly.
I don't know any asset that's gone up 12 years without a down year, and gold needed and deserved a correction. And, if it's going to happen where would it go? $1,200 was between 35% - 40% and 35% - 40% reactions are commonplace, so that was the first number. I wish I could tell you I had a formula.
I'm not sure we've found the final bottom yet, it would make a lot of sense for gold having had 12 years up, to have at least a longer consolidation, a longer correction, maybe a few days, a few weeks, or a year or two. Why not 2014, 2015? My view is that gold is in the process of making a complicated bottom which could take a while. So I'm not buying gold. I haven't sold any gold or silver, but I'm not buying any. I'm watching and expecting a new low, which might be lower.
BI: Were there other things you were watching that made you think gold prices would fall? Emerging market demand or perhaps the Fed?
JR: There were lots and lots of mystics who were convinced that gold was holy. That gold could not go down, that gold had to go up. And that's the reason I think gold hasn't made it's final bottom yet. It's because there are still lots and lots of mystics, people who tell me gold cannot go to $1,200. I say open your computer you'll see it is $1,200. Don't tell me it can't happen.
Many people think this can't be happening or it's being manipulated and there's all sorts of excuses for what's going on. You know when you have people that are faithful, or true believers, you usually don't hit a true bottom until most of those people get washed out. I suspect that is still to come. I don't think many of the true believers have sold their gold yet.
BI: Do you have any guesses for how long it would take to make a bottom?
JR: I wish I was that smart. I don't really know it could happen before 2014 or 2015. But the bull market's not over. Gold is going to eventually make new highs. It seems that there may be another. It's because it had these 12 years without going down, I don't know anything in investment history that has gone up 12 years without a declining year. There may be something I just don't know of it.
BI: What drove gold prices higher for 12 years?
JR: That's a very good question. Another question could be what's caused it to go down finally? What caused it to go up 12 years in a row was a 20 year bear market.
Gold had collapsed starting in 1980 and it went down for over 20 years. It went down substantially. So, when you have a very long extended bear market like that, everybody sells out, mines close, mines open and you lay the foundation for a nice, long bull market. And that's what happened to gold after 20 year period of real despair in gold, then you can have a nice long bull market. And yes 12 years is a long time, but it's nowhere near 20 years. The foundation was built for a long-term bull market.
Then it was driven by the fact that we had a lot of money printing in the world, we had a lot of debt, a lot of crises around the world. So there were all sorts of psychological reasons, all around the world, not just in America, for people to buy gold.
Now what caused it to finally go down, and as much as I love India and Indians, they are the largest buyers of gold in the world. And India has a huge balance of trade deficit. The largest drivers are oil and gold. You can't do anything about oil so the Indian politicians are blaming their problems on gold. And they've taken many measures, and more measures are coming to diminish or even eliminate the import of gold. I'm not the only person who saw that. They've been pretty loud about it. That was the main catalyst or the straw which broke the camel's back which made gold start going down finally, after 12 years of going up. And the foundation had been built for over 20 years and many, many fundamental things came together. But then after 12 years of a bull market more mines started opening, more gold mines were formed and then the Indians said, among others, but mainly the Indians said we're going to stop all this.
And by the way the French have also recently come out with measures that you cannot buy more than, anything, in cash for more than €1000, to limit the purchase of gold. The Germans are also taking measures to make it more difficult to buy and sell gold. So you have a lot of governments coming together with measures against gold and silver, but especially the Indians. And the Indians are the largest buyers.
All these things came together after 12 glorious years because the correction is worse than it would have been otherwise because of the 12 years. So it all fits together what did happen, what is happening, what will happen in gold. I'm not selling my gold. But even though it may be a couple of years more complicated base building, I fully expect the bull market to end in a bubble some day, and some day is not here yet.
BI: Is there anything else our readers should know that I haven't asked you about?
JR: I'm not selling my gold. I'm skeptical, even though I expect gold may go down even more to $1,000 to $900. A 50% correction would be $960 or whatever it is. Now 50% corrections are quite normal in markets. What's not normal is for something to go up 12 years in a row.
So, it would be normal if gold did correct 50%. That might go some way towards shaking some of the faithful, some of the mystics. We got to shake out more people. I don't see any signs that the faithful, they've been worried about what's going on, but I don't see any signs yet that the faithful are giving up and selling their gold. Not just verbal despair, not just people talking about despair, but people acting. Then gold prices will make a nice, firm bottom.
Stay tuned for the next part of our interview with Jim Rogers!
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