Price of PM's

Just wondering what your opinions are about what will happen to the price of silver and gold over the next 2 years.

 

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The primary function of gold is an inverse measure of the value of currency, a hedge against inflation, and beyond that it has additional safe haven demand as those functions are called upon by people. Silver loosely follows gold, but industrial demand gives it a bit of a mind of its own. To answer your question I would need to know whether banks will increase or decrease the money supply. If they increase, the price will rise, and if they decrease it will fall. They have shown a consistent track record of increasing, as well as have committed to near zero % interest rates until 2013 which also has the same effect of increasing the money supply. Central banks around the globe have been buying up gold like crazy, and Chinese imports in Q3 2011 alone exceeded the yearly record they set in the whole of 2010. So I think we are about to see prices go much higher in 2012. However, the price is set significantly more so by supply and demand in the paper traded markets than the physical market, so the price can really do whatever it wants regardless of fundamentals until the physical market takes precedence. From a physical supply and demand standpoint I believe silver has much greater potential than gold.

 

You just made my head hurt lol.I'm only 20 and pretty new to the whole thing. Thanks though.

 

Impressively said and I much agree.

 

IMO Gold price will go to around $2300-2500 by 2013 and Silver will around $50-60 inspite of countries piling up on Dollar as Euro zone worsens. Same thing will happen to the Dollar in the foreseeable future.

 

Sorry! Allow me to elaborate in a way that might make more sense. Imagine the money supply as a pie, and everything you can buy with money as the filling. Say you expand the money supply, and the pie gets bigger, but the filling is still the same size. The filling gets spread out among a bigger pie, and so it takes more pie to get the same amount of filling. Just like it takes more money to get the same amount of gold or silver which are finite resources.

 

Okay thanks, I kinda get it now. So basically if the banks give out more money, people have more money, and they can buy more, so the prices of everything including gold goes up because if the prices stayed the same more people would be able to buy a lot of gold. Right?

 

Pretty much!

Basically, gold and silver are true money. When the government prints more bills, the dollar becomes worth less. However, gold and silver will RISE in the amount of dollars they are worth because the dollar is worth less!

 

Wrong, here watch and learn
http://www.youtube.com/watch?v=vVkFb26u9g8

 

A lot of folks with real assets (e.g. real estate) are sure wondering about that dollar devaluation effect on things the banksters can't conjure into being at the press of a button, myself included. But, yeah, eventually, maybe, gotta happen sometime!, inflation will make everything else rise. I just wonder if the curve will be exponential once it really gets going...kicking the ball of fiscal responsibility down the road all the time will have consequences, it's just a question of when and to what degree.

OP - my naive WAG is that any PM will be better than cash over the next decade. Stay the course in dips, actually, be thankful for dips - buy more then!

 

I think the price/direction of PM for 2012 and maybe longer, will be determined in the next 10 days. If Friday, everything goes well for the Eurounion, US stocks will rise strongly, and money will go out of precious metals into stocks, and the US dollar will maintain similar to the Euro because they will be printing money also. Precious metal prices are a combination of supply /demand for industrial uses over cost of production and fear ( fear of inflation, geopolitical aggression, internal meltdown of the various governments, etc). SO everyone in "reefer heaven" looks bad for PM. I figure a drop of $150-350 over the year.

However, if talks and deals collapse, Our stock market and the euro will drop again as people sell to protect with cash or precious metals. So the scenario for gold price increase would be strong, maybe $100-$300 increase over the year. A nuclear situation with Iran, North Korea, Israel, US, etc.) or a very hard landing of China's economy ( not unrealistic ) could raise the POG even more. IMO, and none of us ( including the bullion pundits) know for sure, but I would trade on these outcomes. Watch the news on Thursday night US time/ Friday European time for the current Big European showdown..

Also, it is interesting to me to watch CDS rates. These are basically how much it costs to insure sovereign debt. 6 months ago, there were 5 European countries that were considered safer from credit default that the US, now the US is the least likely. China and Japan use to be about the same as United Kingdom, but now much worse. Greece is still horrible. Rather like car insurers using different rates for different degree of loses in certain city/states.
http://www.cnbc.com/id/38451750

Jim

 

If Europe does continue to get bailed out, which I tend to think they will, that just means that they get to borrow more money and go deeper into debt, and everybody bailling them out (including Fed printed US dollars) has their currency further devalued. The paradox here is that the entities doing the bailouts are only as good their member nations which all need to be bailed out. I don't see how it changes the eventual outcome even if it does push money into stocks in the meantime. What needs to happen is a haircut on sovereign debt like happened in Greece, except those haircuts weren't large enough to fix their debt problem, but that's not going to make the market go up either. I agree all currencies will likely be devalued, which is all the more reason to have metals for the longhaul. They have less downside risk due to intrinsic value, but that doesn't mean they won't go down either. That's why I buy and hold, and stay away from the flipping. That way I don't have to worry about what's going on in the world today, because I'm looking down the road.

 

I wonder if there is any country in the world that has zero debt? Not that they couldn't pay it off, but just zero debt on the books. I really doubt it, they all issue bonds or notes of some sort. My viewpoint is that debt will always be with each country to some point. So my thought is to go with the best of the breed, and figure that all other debt countries will be compared to that one. About 6-9 months ago, the USD was .72 to the basket of currency, tonight it is 78.5. So the number of dollars is higher now ( I am really not sure, need statistic) but each one also buys more on the world market. The public press and bullion sites were more excited about saying the USD would be paper towels ( or such ) and gold would be $5000 an oz, silver $300, etc. by the end of the year, yet this did not occur. Why do people and countries keep buying US bonds even though they pay almost no interest at all? It is like they are saying, " here hold my money and keep it stable. you needn't pay me anything", but buying Italian bonds? The buyers want returns of 6-7%, even now when there is suppose to be agreements coming up. No one asks " How many USD are circulating compared to Euros? At this time they are looking for security. The CDS page above shows that very well, not perfectly, but well enough to see where the risk is suspected to be. Maybe not the best way to look at things, but I know of none proven more accurate. But like I say, IMO.

Jim

 

"Why do people and countries keep buying US bonds even though they pay almost no interest at all? It is like they are saying, " here hold my money and keep it stable. you needn't pay me anything", but buying Italian bonds? The buyers want returns of 6-7%, even now when there is suppose to be agreements coming up. No one asks " How many USD are circulating compared to Euros?"​

The answer is this: The United States Military

As long as a country possesses USD, then the US Military guarantees that it can use these dollars to purchase oil on the global market. Furthermore this military is under control of just one person. While one person or for that matter country may agree or disagree with the USA, this stability gives the party a sense of stability in regards to the currency. Contrast this to the Euro, where at the moment, there is no one in charge and no one taking charge with possibly the exception of Merkozy which beyond two countries are regarded with a great deal of skepticism, distrust, and outright disgust. All in all not a place that inspires confidence in regards to monetary matters. The Euro experiment has failed and it won't be repaired by increasingly complex schemes to paper it over.

(BTW, this isn't to say there are not problems in the USA, but they are not the same as those in Europe)

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IMO, gold will continue to do what it has done over the past 11 years which is to go up. There will be swings for sure, but even with the one we had this year, gold has outperformed almost everything else. Silver, I have no idea where it's headed.

 

So why is everyone concerned about what the price of gold will be sometime down the road? Price is a measure of value in relation to the pie. Shouldn't you be more concerned with a measure of value in relation to the filling?

 

It's still a bull market, so PM prices will probably go higher.

War is generally bearish for money, and peace is not in sight.

 

I believe Libya had zero debt under Gaddafi, but I'm not 100% sure. I do know that they had 0% interest in loans, that every person in the nation owned their own home, that the government would pay for schooling, and that gas was under 20 cents USD per gallon. In any case, I would not argue against the USD being one of the best currencies to be in, if not the best, at least as long as it is the world reserve currency and the US can export its inflation. The only ones to rival it that I can think of would be the Yuan or the Singapore dollar. Certainly not the Euro, or the Swiss Franc which is now pegged to it. My point would be that when all currencies are being devalued, it doesn't really matter what they are in relation to each other. All that matters is the price of gold as a measure of the value. As for why people are buying bonds, I don't think many people are. Central banks are the only thing keeping those bonds from sitting on the auction block.

It takes time to expand the money supply in a manner which doesn't wake the sleeping giant of the masses. It will also take time for the physical market to supplant the paper market in determining the price. Ergo the more time that passes the more likely it is that there will be more pie and less filling, given current policy and current dynamics. This is an assumption of course as nobody knows the future, but it's what I would give the greatest probability of eventuality. As the pie increases or decreases in size, the value of the filling will adjust accordingly, so it's the same thing whether you look at it from a standpoint of the value of the filling or the size of the pie since the size of the pie determines the value.

If you mean why do people care about the price as opposed to the measure of value, that's because we have been indoctrinated into a system where value is denominated in dollars instead of how it used to be where dollars were denominated in gold, and before that gold and silver.

 

do commodities for the most part move together? estimating that a 1 oz silver round could buy about 10 gallons of gas today. could a 1oz silver round have bought 10 gallons of gas back in 1970?

 

Without looking it up, an ounce of silver was probably around 10X a gallon of gas back then [going strictly from memory]. But that said, commodities tend to each have their own supply and demand characteristics, so it is important to distinguish between a cause & effect relationship and coincidence. When there is a major commodity bull or bear market, they all tend to go in the same direction the same way stocks do. But there isn't any reliable measure of one to another. Take silver. It's taken 15 ounces to buy an ounce of gold, and 100. Some people still insist there is a relationship in there someplace, but in my opinion the mind can see more patter relationships than actually exist.

 

Net says regular gas was $0.36/gallon in 1970 however as a young kid I seem to remember it being around $0.32. (next door neighbor at the time owned a gas station)

Silver was $1.63, so answer is no. Looks more like ~5 gallons.

However there is an interesting note to this. The circulating 1/2 dollar in 1970 was still 40% silver. So in that case, 1 ounce of silver = $2.50. With that you could get close to 8 gallons.