my PM price prediction (feel free to fire away)
secondrepublic
Posts: 2,619 ✭✭✭
I think we're at -- or very close to -- the peak prices we're going to see for gold/silver. We're going to see a major correction around year-end. After that, we're going to see declining prices in 2011 (and for the next few years) before a potential upswing later in the decade.
My reasoning is as follows:
The run-up in gold and silver prices through early 2008 had a strong logical basis -- the weak and declining dollar, which (to take one example) fell from parity with euro to $1.60 between 2002 and 2008, and fell from $1.50 Canadian to parity during the same time. The trade deficit more than doubled to $60 billion/month during that time, and the federal budget swung from surplus to (what seemed at the time) like large deficits. Single-party control of government led to big wars and huge deficits.
During the financial meltdown in late 2008, gold prices collapsed to the $700s and silver to near $10. But for much of the time since then, they've been on fire, especially recently. There is a case to be made for why PMs bounced back so quickly -- the fear of inflation. Since the current president took over, we've been running $1 trillion-plus annual budget deficits. All of the borrowing and spending and creation of new money created a legitimate fear of hyperinflation.
But looking forward, I just don't see the case for further increases in PM prices anytime soon. In fact, I see a real likelihood of a major correction. For one, with unemployment near 10%, most companies have no power to raise prices. Companies can barely maintain pricing power. Wages are stagnant. Private debt levels are high, which weighs down on consumption.
In spite of the government stimulus and borrowing, that's not inflationary. It's actually a lot more similar to Japan's experience in the last 15 years... following the collapse of their housing bubble, an ever-increasing government debt burden, but with zero inflation. Japan's total public debt is now 189% of GDP - more than twice our level - and they have a shrinking population. link. Yet their currency hasn't collapsed. In fact, they have a much bigger problem with deflation than inflation.
If the opposing party retakes some or all of Congress after the November election, there will be gridlock. The Republicans will be at war with Obama's spending priorities. That will be good for reducing the budget deficit, just as it was when the Republicans took power in 1994 and battled it out with Clinton. That was the only time - in my lifetime - that we've had balanced budgets.
In short -- I see an experience similar to Japan's, but with a quicker improvement of the overall picture. A housing bubble collapse and big debt overhang do not lead to inflation. Political changes in Congress will further reduce the deficit in 2011, thus easing the fear of inflation. That is bad for PM prices.
That's my prediction... feel free to fire away
My reasoning is as follows:
The run-up in gold and silver prices through early 2008 had a strong logical basis -- the weak and declining dollar, which (to take one example) fell from parity with euro to $1.60 between 2002 and 2008, and fell from $1.50 Canadian to parity during the same time. The trade deficit more than doubled to $60 billion/month during that time, and the federal budget swung from surplus to (what seemed at the time) like large deficits. Single-party control of government led to big wars and huge deficits.
During the financial meltdown in late 2008, gold prices collapsed to the $700s and silver to near $10. But for much of the time since then, they've been on fire, especially recently. There is a case to be made for why PMs bounced back so quickly -- the fear of inflation. Since the current president took over, we've been running $1 trillion-plus annual budget deficits. All of the borrowing and spending and creation of new money created a legitimate fear of hyperinflation.
But looking forward, I just don't see the case for further increases in PM prices anytime soon. In fact, I see a real likelihood of a major correction. For one, with unemployment near 10%, most companies have no power to raise prices. Companies can barely maintain pricing power. Wages are stagnant. Private debt levels are high, which weighs down on consumption.
In spite of the government stimulus and borrowing, that's not inflationary. It's actually a lot more similar to Japan's experience in the last 15 years... following the collapse of their housing bubble, an ever-increasing government debt burden, but with zero inflation. Japan's total public debt is now 189% of GDP - more than twice our level - and they have a shrinking population. link. Yet their currency hasn't collapsed. In fact, they have a much bigger problem with deflation than inflation.
If the opposing party retakes some or all of Congress after the November election, there will be gridlock. The Republicans will be at war with Obama's spending priorities. That will be good for reducing the budget deficit, just as it was when the Republicans took power in 1994 and battled it out with Clinton. That was the only time - in my lifetime - that we've had balanced budgets.
In short -- I see an experience similar to Japan's, but with a quicker improvement of the overall picture. A housing bubble collapse and big debt overhang do not lead to inflation. Political changes in Congress will further reduce the deficit in 2011, thus easing the fear of inflation. That is bad for PM prices.
That's my prediction... feel free to fire away
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
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Comments
Several have stuck their heads in this forum and predicted gold to plummet only never to be seen again
Your assumptions have merit and a deep pullback before another leg up is plausible and maybe even likely.
After spending considerable time in Japan I can tell you it's comparing apples to oranges.
What could drive gold prices higher? Lack of confidence. Countries defaulting. Civil unrest. Financial derivitives coming home to roost. I would say that the odds are good we will see one, two or even all of these things happening in the not to distant future.
I don't care if gold goes up or don't. It's not why I own it..................MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
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One other thing about FDX's business. They are very nimble. They are not scared to take risks but when something does not pan out they can adjust rather quickly. The only thing that is constant is the change. I've seen continuous construction at the Memphis airport for the past 15 years. Simply amazing what is being constructed. I wish I had the cement contract.
r95
<< <i>If you want to use FedEx as a barometer then the future looks a bit brighter. We have been buying new airplanes, loads are up internationally and domestic is stable. Their outlook looks good for next year. The stock was up significantly today. When I got on the property in the nineties the company was a barometer of the US, now it's one of the world. Meanwhile, UPS is going through serious issues on the aviation side of the house....furloughs(?). I feel bad for my "brown" comrades. I have many former squadron mates over there.
One other thing about FDX's business. They are very nimble. They are not scared to take risks but when something does not pan out they can adjust rather quickly. The only thing that is constant is the change. I've seen continuous construction at the Memphis airport for the past 15 years. Simply amazing what is being constructed. I wish I had the cement contract.
r95 >>
Thanks for sharing RM.......That is a good thing. MJ
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
Steady uncertainty in most every thing in economy, politics, & JOBs. The deficit way out in the stratosphere!!!
The smoke & mirrors of the TBTF boys just now being undisclosed.
Uncertainty and a squeeze on supply are the driving forces of PM's price today.
I think the 2008 shock factor is a poor example to compare today's prices to. JMO, maybe I'm missing something.
Gold is being driven by the 3D's: ......dollar......derivative's risk in the 5 big banks.....deflationary or downward spiraling business climate.
Until those 3 things get cleaned up, I don't see much other direction that gold can take. Oh sure, it will see some scary corrections in the future, but we saw those in 2004, 2006-2007, 2008, and even 2010 and none of them mattered in the bigger scheme other than to shake weak hangs out. The problem with fiat is that creating more of it doesn't help support it. And that's the road we're on. Gold thrives in an environment where business is stagnating and declining along with fiat currencies. That's the ideal boom conditions for gold. It does not do well when business conditions pick up and look rosy. Fix the dollar, fix the overspending and borrowing, unwind all the derivatives, bring back the jobs and businesses....and gold will slink away just like the 1990's.....well just like the 1990's minus all the central bank gold sales and foward selling. The CB's are out of gold to sell just like the miners aren't forward selling like loons. It's a much tougher environment today to try and control/manage PM's since you're fighting the entire world.
roadrunner
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I expect when gold tops out we will see a strong vertical move with a hundred dollars or two hundred dollar moves in the price, sort of a blow-out top. Silver isn't close to that yet, but let's see what happens.
<< <i>I think that we are seeing gold become a reserve currency/disaster hedge. It was traditionally viewed as an inflation hedge but the price action over the last decade is evidence that it is not the case. Sure the dollar has weakened over the last decade but not enough to merit a 300% increase. The drop we saw in 2008 to 700 per ounce was purely technical as it was affected by general deleveraging. As far as predicting where it will go from here, I think that it will remain strong and could spike up due to it being a small market. I think the risk/reward profile favors the long player. >>
Well said!
--Not every bull market ends in a "blow off top" like 1979-1980. Gold also had a significant bull run in the mid-1980s. Gold fell to $285/ounce early in 1985.... and then rose to almost $500 in late 1987. That's an increase of almost 80% in two years, coinciding with the Black Monday stock market crash of October 1987 -- another time of economic stress and uncertainty. But after the economic climate improved, gold again declined in price, and stayed down for years.
--Gold's inflation-adjusted average price in the last 40 years is $615/ounce. We're now almost at twice that level.
--Gold only very briefly reached its all-time price peak in 1980 of $850/oz (in 1980 dollars). The average price throughout that peak year of 1980 was $612/oz. While $850/oz is equivalent to $2,252 today (using official gov't inflation numbers), $612/oz is only equivalent to $1,621. Not too far off from the current price, in inflation-adjusted terms.
--Maybe a few people sold at the peak of $850, but I wouldn't bank on being able to time it so carefully.
Just my 2 cents. I appreciate all of the thoughts or comments posted so far.
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--Gold's inflation-adjusted average price in the last 40 years is $615/ounce. We're now almost at twice that level.
--Gold only very briefly reached its all-time price peak in 1980 of $850/oz (in 1980 dollars). The average price throughout that peak year of 1980 was $612/oz. While $850/oz is equivalent to $2,252 today (using official gov't inflation numbers), $612/oz is only equivalent to $1,621. Not too far off from the current price, in inflation-adjusted terms.
I think most commodity bull markets do end in a blow off type top. And with fiat only expanding over each sucessive bull cycle, it just makes each one even more parabolic. The 1980 peak wasn't fueled by collapsing banks around the world and a loss of control of fiat money. This current run has all the aspects of the 1970's plus a littany of other larger problems. I think it's final move will dwarf the '79-80 run. And because gold will be needed in some shape or form to give support to a new world currency (or currencies), that will mitigate a drop like what was seen from 1980-1982. Gold is not going away this time...at least not that soon after a peak. So while trying to catch the 1980 peak was very difficult, this next one won't be as hard. Sinclair feels there may be a 20% pullback and then a settling to whatever gold's new monetary role will be. Gold will overshoot it's monetary balancing as it did in 1980 and then pull back to that money neutral point (ie where it balances out all the fiat money). The 20% pullback will remove any excess hype and momentum overshoot.
Gold's run in the mid-1980's was only a corrective pullback (ie a wave 2), not a true cyclical bull. So the bounce ended more with a whimper than a bang. Basically gold was dead after 1980 all the way to 2002. That entire move was basically a long corrective wave 2 that forced gold to sit on the sidelines and watch 18 yr stock mania.
roadrunner
debt is simply eliminated by inflation. Governments are tripping over one another
to devalue more than all the others.
I don't think the question is will there be inflation but how much inflation is necessary
to muddle through this mess. Barring a technological breakthrough or dramatic in-
creases in productivity the necessary inflation level should be substantial.
People are still not prepared for this inflation. There has still been no massive or
widespread move into gold or commodities.
As time goes by there should be increasing pressure on gold.
I'm not ready to say that we're out of the woods.
I knew it would happen.
<< <i> I think most commodity bull markets do end in a blow off type top. >>
Gold has elements of both a commodity and a currency. Right now, the currency side of it is in the forefront. There was a chart posted in another thread recently showing that -- by far -- the biggest increase in demand for gold recently has been the ETFs. That more than offsets a decline in the "commodity" uses of gold, such as jewelry.
ETFs are hot money. It moves in and out quickly. That is money which, by an large, is piling into gold as a speculative bet. It's the greater fool theory.
For those smart enough to have bought low, keep in mind that no one ever lost money taking a profit.
<< <i>For those smart enough to have bought low, keep in mind that no one ever lost money taking a profit.
Those smart enough to have bought low aren't about to sell while Bernanke continues to ramp up the (electronic) printing presses with "quantitative easing."
My Adolph A. Weinman signature
<< <i>
For those smart enough to have bought low, keep in mind that no one ever lost money taking a profit.
Tell that to someone who bought 3,000 shares of BIDU when it was trading at 40/share.
Bidu is now trading close to 1,000/share. Needless to say I sold it well before it's 25x increase.
That's not 25%, that's 25x. Ouch !
<< <i>The trend for my company's bookings took a nosedive in 2008 and has struggled back somewhat since then. Future predictors look mildly positive.
I'm not ready to say that we're out of the woods. >>
and my i suggest that this is true for companies that are also NOT USA based and or driven. there is still a 'better' outlook for BRIC, yet it's like looking at ugly and looking at one step higher.
there are exceptions, in my back yard in-fact, but i-phones and i-pads and streaming-your-life-away will not save the world economy
put me on the other side of secondrepublic...i'm not firing, it's like having a few cigars and scotch here discussing things (most of the time)
For long termers, it may still turn out that 9/29 was a good time to start to lighten up. For short termers, not so much.
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When the governments around the world who have been net sellers turned into net buyers, that is a more significant factor and it should be considered.
The governments are all devaluing their own currencies and obviously, something's going to change. The question is "what is it going to look like after they are done with the currencies?"
While they are busy deciding who are going to be the bag-holders of the world, I'm going to continue holding precious metals.
When the gold ETF holders realize that they own paper, will they be motivated to buy the real thing, or to simply sell? Hard to say. The hot money is always welcome to leave. I'm not throwing the baby out with the bathwater.
I knew it would happen.
<< <i>
For those smart enough to have bought low, keep in mind that no one ever lost money taking a profit.
They do lose money if the money they get for their gold is depreciating, such as the $.
And if there is significant paper derivatives backing those funds then smaller shareholders who have no right to physical redemption are truly greater fools. That will put physical gold holders in even a stronger position. If one compares the GLD inventory chart to the price of GLD it's quite clear the inventory is far less volatile. And maybe it shouldn't be. Or is that a thint that the fund is papering up the larger swings?
For those smart enough to have bought low, keep in mind that no one ever lost money taking a profit.
And no one ever made great money by getting out way too early on a first leg of a multi-year advance. Imagine getting out of gold at $450 or silver at $7 on the first leg when the Prechterites (and most forum members) were banging the drum for a crash back to previous lows. Those could have been 75% returns vs. the 445% returns of the past 9 yrs. Doing well also means knowing when to stay the course for the long term.
roadrunner
<< <i>Did anyone take action on or around 9/29/10? Did any forumites sell some of their core holdings or short via futures or options? If so are you doubling up on shorts? Or covering?
For long termers, it may still turn out that 9/29 was a good time to start to lighten up. For short termers, not so much. >>
I am still buying both gold and silver at these prices, with no intention to lighten my holdings anytime soon as long as current trends continue. We are not even in sight of a top in these physical markets. Anyone who has followed my posts on the subject know that back in 2002 I was calling for $5000+ gold (which was considered insane by nearly everbody; even $1000 was seen as loony) and I see no reason to back down now.
"Ask, and it shall be given you; seek, and ye shall find; knock, and it shall be opened unto you." -Luke 11:9
"Hear, O Israel: The LORD our God is one LORD: And thou shalt love the LORD thy God with all thine heart, and with all thy soul, and with all thy might." -Deut. 6:4-5
"For the LORD is our judge, the LORD is our lawgiver, the LORD is our king; He will save us." -Isaiah 33:22
Anyway that is my guess, I also expect a large blow-off top on gold when the final end is here. So far we haven't come close to that one yet.