Monday, May 2, 2011

How High will Silver and Gold go?

Gold in New Zealand dollars: $1934.87 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $59.24 per oz
Previous all time high: $48.58
per oz
With precious metals, we used to be concerned about how much gold the Indians were buying during wedding season, or worldwide jewellery demand, maybe even Central Bank selling. But this could all be moot in this current environment.

It's now all about wealth protection.

And the silver fundamentals remain strong.

There are troubles in Bolivia with the Government there threatening to nationalize the silver mining industry. And we all know what happens when Governments get involved in primary industry.

The US dollar is losing value via the Federal Reserve's policies. This is continuing as of Thursday last week when Mr Bernanke announced the interest rate will remain around zero. More dollars swamping the system equals higher prices for all commodities.

Concerns about Sovereign debt default, especially in Europe persist. Who in their right mind would want to buy currencies right now?

There are views out their in the blogosphere that there are shortages of silver and even a default on the COMEX likely soon. Rumours are good to keep a track of, but facts make better decisions.

There is also credible information that the large investment banks are now starting to cover their short positions. This means they need to go into the market to find physical silver in a hurry or cover these positions or cover with a cash settlement, probably at a high premium to the spot price.

When the oil rich Arabs get out of the US dollar, look-out! Commodities could benefit.

There are other views as well.

One respected commentator is saying now may be the time to swap out from silver to gold, as the gold to silver ratio at 32.66 is showing signs of increasing again. (Note, the traditional ratio is around 16 ozs of silver to 1 oz of gold. This is the naturally occurring ratio in the earth's crust. Recently the ratio has shot down from around 80 to the low 30s).

But remember charts only really give you an educated opportunity to see trends, they can never account for fear or weird circumstances, like wars in Libya and a sudden sovereign default on debt.

By all means watch the prices carefully, as I will be. After all, a parabolic run upwards in the silver price is unusual. Moreover, we wouldn't want to be caught out by the old saying, "But it's different this time!"

Parabolic rises always have a look of caution.

But ask yourself this question. How many of your friends or even your investment advisers own gold or silver. Mentioning the precious metals at a party of your peers still creates an awkward silence. My bet is most don't own anything. When the media mirrors what this fake future magazine cover is saying, then it will probably be time to sell.

Courtesy of Casey Research
How high will silver and gold prices go? Views range from $50 to $100 this year. But the real answer to that is, how low will the value of our currencies go? An ounce of gold or silver will always be an ounce of gold and silver. Currencies are paper and can be produced with a hit of computer's 'enter' key.

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