Well, we’re past the 4th of July holiday and the midpoint of the year. We hope all of our readers and customers had an enjoyable and safe summer holiday – now that we’re halfway through 2012, it’s a good time to take stock of the gold and silver markets and try to see where things are headed for the remainder of the year.
In the past few months, gold has struggled to maintain much upward momentum, which is in a way puzzling due to lackluster growth in the U.S, financial troubles in Europe and no real clear picture on the direction of the world economy.
In light of this weakness, many analysts have cut their year-end estimates for gold; the new estimates are still above current prices according to a report from Business Insider. Societe Generale for example cut its year-end estimates from $1810 to $1700 per ounce absent any further monetary easing by the Federal Reserve.
One reason analysts cut their forecast is weakening demand in other parts of the world, namely India. Although demand from India will tick-up in the 2nd half of the year and somewhat buoy gold, it’s still expected that gold sales will be 30% lower than they were in 2011. A change in the duty structure by the government has made gold and silver more expensive in India, which is essentially acting to curb demand.
Of late, gold has also moved in-sync with riskier assets since late last year. Many attribute this to tightening credit conditions brought on by the ongoing debt crisis in Europe.
Possibility of a third-round of monetary stimulus by the U.S. Fed one factor that could drive gold over $1800 and possibly to $2000 per ounce
Weaker than expected job numbers coupled with falling energy prices and weakening growth in China has been worrying to Ben Bernanke and other Federal Reserve officials, who maintain that a 3rd round of quantitative easing may be needed.
This further monetary easing is what’s driving Goldman Sachs’ estimate that gold will rise to $1840 per ounce over the next six months. And while it will take awhile, analyst Matthew Carr says gold will eventually reach the $2000 milestone.
Legendary commodity investor Jim Rogers though expects even further pullback in the price of gold. In an interview with OilPrice.com, Rogers explains that no other asset has risen 11 years in a row. Corrections of up to 30% or 40% are not unheard of. He says while he’s not buying any gold bullion at the moment, he’s not selling any either.
Over the next decade, Rogers is quite bullish on gold. In the near-term though, he says he won’t buy anymore unless we see the gold price drop another $100 or $200 per ounce. Rogers believes the current 15% correction is nowhere near complete and will continue on for the rest of 2012.
Last September, gold prices peaked at an all-time high of $1925 per ounce. Today, the gold price hovers around $1600 per ounce, which represents a decline of around 17% from its all-time high last year.
Opinions on where gold will go in the second half of 2012 vary far and wide. Some say its bear market will continue and slide to around $1300 per ounce, especially if there is no additional monetary stimulus from the Fed. Others say that what’s known as QE-III will send gold to over $2000 per ounce by year’s end.
Regardless of their outlook though, just about every analysis we’ve read in the past few days says gold bullion is a solid investment for the long-term. Even if gold drops to $1300 by year’s end and posts a loss for 2012, it will not be unheard of nor a sign of long-term weakness in precious metals.
Jim Rogers explains how gold fares pretty well…regardless of how well the economy is doing. If the economy is bleak, central banks will print money like mad to try and jolt it back to life. Investors will flock to gold and silver as a safe haven against this currency devaluation and general instability.
If the economy recovers, increased industrial demand, jewelry demand and even investment demand will serve to buoy gold.
For example, in 2008, gold and silver did experience a pull back from the bull run it had since 2001. However, gold still ended up on the year and while silver did drop, it paled in comparison to the losses seen in stocks, mutual funds, 401k investments and more.
I would avoid flakes and nuggets. There is no guarantee of purity with those. Either branded bars or coins or an ETF is the best way. The ETF is the least expensive way and the easiest to sell also. Coins generally sell for the highest premium but there was a time when South African coins actually sold at a discount. Also I might add that there is a considerable bid/ask spread on physical forms of gold whereas on an ETF only a brokerage commission. GLD is the most popular but I believe IAU is another. One might also consider gold mining shares. These are more leveraged than just plain gold. That means that when the price of gold increases the gold mining company stocks tend to rise much faster and vice versa. There are also index funds of those. GDX is one.
We believe there is a place for all forms of metal investing in a portfolio. Don’t forget to take a gander at precious metal IRA accounts also. No replacing the benefit of physical ownership however, in our opinion! Thanks for the post Bobby!
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