Thursday, February 10, 2011

How High Will Gold / Silver Go In 2011? by Shan Saeed

Price Outlook and Forecast for Gold and Silver in 2011. How High Will Gold Go In 2011? By Shan Saeed

We are talking about REAL ASSETS over here. We cant devalue or multiply these real assets out of thin air. After stellar years for both gold and silver, what prices will precious metals hit in 2011? Here's an in-depth analysis based strictly on their price behavior in the current bull market.

Strategic Analysis of Prices for Gold:

Look at the annual percentage gains that Gold has registered since 2001 [based on London PM Fix closings]:


Year % Gain
2001 0.7
2002 25.6
2003 19.9
2004 4.6
2005 17.8
2006 23.2
2007 31.9
2008 4.3
2009 25.0
2010 30.7

Sources:
IMF, WORLD BANK, WORLD GOLD COUNCIL, JIM ROGERS, MARC FABER, KITCO, BLOOMBERG, GEO TV, BUSINESSPLUS TV, AAJ TV, ARY NEWS, Financial Times, Wall Street Journal, IHT.COM, nytimes.com, ECONOMIST, BUSINESSWEEK, DEUTSCHE BANK, GOLDMAN SACHS, JP MORGAN, SOCEITE GENRALE, MORGAN STANLEY, BANK OF AMERICA MERRIL LYNCH, RBS, CITIBANK, IBA Library and University of Chicago, Booth School, Library, USA

Excluding 2001, the average gain is 20.4%. Tossing out the additional weak years of '04 and '08, the average advance is 24.8%.

So to make some projections based on what it's done over the past 10 years. From the 12-31-10 closing price of $1,421.60, if gold matched…

• The average rise this decade, the price would hit $1,711.60
• The average rise excluding the three weak years = $1,774.15
• Last year's gain = $1,858.03
• The largest advance to date (2007) = $1,875.09

But what if global economic circumstances continue to deteriorate? What if worldwide price inflation kicks in? And what if government efforts at currency debasement get more abusive? A mania in all things gold lies ahead – what if that begins in 2011? Here's what price levels could be reached based on the following percentage gains.
• 35% = $1,919.16
• 40% = $1,990.24
• 45% = $2,061.32
• 50% = $2,132.40
• 1979's gain of 125.7% = $3,208.55

It thus seems reasonable to expect gold to surpass $1,500 this year [Conservative estimate], as well as reach a potentially higher level since the factors pushing on the price could become more pronounced.

SILVER PRICES: Look at the annual percentage gains that Silver has registered since 2001 [based on London PM Fix closings]:

Here's a look at silver.

Year % Gain
2001 -1.2
2002 3.2
2003 27.9
2004 14.2
2005 29.6
2006 46.1
2007 14.4
2008 -26.9
2009 58.5
2010 83.9


Sources:
IMF, WORLD BANK, WORLD GOLD COUNCIL, JIM ROGERS, MARC FABER, KITCO, BLOOMBERG, GEO TV, BUSINESSPLUS TV, AAJ TV, ARY NEWS, Financial Times, Wall Street Journal, IHT.COM, nytimes.com, ECONOMIST, BUSINESSWEEK, DEUTSCHE BANK, GOLDMAN SACHS, JP MORGAN, SOCEITE GENRALE, MORGAN STANLEY, BANK OF AMERICA MERRIL LYNCH, RBS, CITIBANK, IBA Library and University of Chicago, Booth School, Library, USA

As you can see, silver had its biggest advance in 2010. The average of the decade, again excluding 2001, was 27.5%. And also tossing out the '08 decline, the average gain is 34.3%. So, from the 12-31-10 closing price of $30.91, if silver matched...
• The average rise this decade, the price would hit $39.41
• The average gain excluding 2008 = $41.51
• Last year's advance = $56.22
• The 1979 gain of 267.5% = $113.59

So, $49 silver seems perfectly attainable this year. And that's without monetary conditions worsening.

It's titillating to ponder these advances for gold and silver, especially when you consider we might be getting close to the mania. And if we are, that should do wonderful things to our gold and silver stocks, too.

I would add one caveat: the odds are high that there will be a significant correction before gold begins its march to these price levels. In every year but two ['02 and '06], gold fell below its prior-year close before heading higher. And here's something to watch for: in every year but one ('08), those lows occurred by May.

In other words, a buying opportunity may be dead ahead. And if you buy on the next correction, your gains on the year could be higher than the annual advance. Are you satisfied with the amount of bullion you own if monetary and fiscal circumstances deteriorate? Are you prepared to profit from the mania in precious metals is ahead? If not, start the year right with a RIGHT RISK APPETITE to profit from the ongoing bull market…

Although the silver price has declined by 11% over the past three weeks at the start of 2011 and Gold has lost 7% in value, tightness in the physical market continues as the metal is again in backwardation, i.e. the spot price is higher than the futures price. Silver is in backwardation which is an extremely important development. Backwardation happens regularly in most commodities, but it is rare in the precious metals.
Silver is in backwardation not just in the short-term, this time it is extending twelve months forward! The last time this happened was in January of 2009. Over the next few weeks silver rose from about $10.50 to $14.50, a roughly a 40% move higher. The key to understanding backwardation is that the price must rise to entice holders of physical metal to sell and accept a national currency in return. I think we can expect a similar event to repeat over the next few weeks. A similar type of move would clearly put silver well above its previous high. What this backwardation illustrates is there is a great disconnect between the physical and the paper markets in silver. As I said previously, the silver shorts simply cannot hold the paper price down here any longer without seriously discredit the paper silver market as a price discovery mechanism.”

Some positive development in the silver market, reporting a massive increase in silver bullion demand from China, with the country’s imports surging fourfold in 2010As on so many other fronts, China is turning out to be a game changer. The heat is on in the precious metal market.


Disclaimer: This is just a research piece and not an investment advice. Investors are encouraged to execute their own due diligence when making any strategic investment or implementation.

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