Summer is winding down, the kids are returning to school, and gold and silver are trending up! Over the last several months, it seems to the untrained eye that these popular metals have taken a real beating and their best days are behind them. One year ago, gold jetted above $1900 per ounce and seemed to be headed to $2000.
But over the course of 2012, both gold and silver have retreated. Many viewed this as evidence that the metals were in a bubble. Veteran market observers though noted that the pullback seen over the course of this year was in fact normal according to historical trends.
In the last few days and weeks, it appears the trend is headed back up, for now at least. As of this writing (Thursday, August 23rd), gold was holding steady at just over $1670/oz, a 3-½ month high. Silver too has seen a rally in recent days – jumping over a dollar per ounce to around $30.80.
Speculation as to why we’ve seen this recent rally varies far and wide. In reality, it’s likely a combination of continued sovereign debt troubles in Europe coupled with a general sense that gold and silver is currently a good bargain.
These recent moves in the metals market begs the question – is gold and silver about to break out to new all-time highs?
In other words, is the 2012 correction over? Will we see gold resume its march to $2000/oz and silver to $50/oz?
While many analysts claim that we will eventually see all-time highs again, it may be awhile before we get there. And, getting there won’t exactly be a smooth move upward.
One technical analysis from Jordan Roy-Byrne at the Daily Gold says yes, we will eventually see a breakout but it may be awhile before it happens.
In gold, Byrne claims the yellow metal has followed a consistent pattern over the last decade. Following an “impulsive” advance, the market usually experiences a consolidation that lasts several quarters. The latest advance started in late 2009 and lasted nearly two years, which is a bit longer than what we’ve seen in the past.
The current consolidation is around 12-months old…according to charts featured in Byrne’s commentary, previous consolidations have lasted anywhere from 16 to 20 months. Byrne states that gold will need to rally back to the $1800-$1900 range and consolidate again before breaking out to the $2000+ range.
Silver on the other hand continues to consolidate following its historic run from $8/oz to $49/oz. Although Byrne thinks $28/oz is the bottom of this consolidation, a re-test of the $49 high will take some time. The analyst contends that any breakout past $50 may push silver into a “bubble” phase.
Gary Dugan, CIO of Coots, is a big fan of gold and says everyone should own some. He believes that $1700/oz in the next three months is a realistic number but if we see conditions deteriorate further in the Eurozone, it’s possible gold will retest that $1900 high pretty quickly. Nevertheless, Dugan maintains that gold will benefit from continued weakness in major currencies, including the U.S. Dollar, the Euro and even the Chinese Roubini.
See this quick clip from CNBC below:
Considering the current unease in the world surrounding paper currencies, we feel gold and silver will continue to perform well, especially if the U.S. central bank begins another round of quantitative easing, or QE. If the Fed announces a third round of QE, we could certainly see gold and silver retest those highs relatively quickly.
Absent any further monetary easing, it may be several months or even a year before we see considerable gains in gold and silver.
Check back with us again for further analysis…as the U.S. presidential election nears, we’ll certainly be keeping a close eye on the gold and silver markets as well as the economy at-large and report any developments we feel warrant your attention.
Leave a Reply