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Author Topic: The Bullion Report For January 4, 2012: New Year, Fresh Star  (Read 1024 times)
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January 05, 2012, 06:37:44 AM

The New Year has begun, and with it comes a fresh start for world markets. Many news outlets greeted the first minutes of 2012 by remembering what a tough year 2011 was. As global economies turn to a fresh page, what can investors expect to see from precious metals?
Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Gold prices finished 2011 trading at $1,566.80 which was a 9.3 percent increase for the year. Gold saw its lowest level back in February, but also established a new record high above $1,900 per ounce in September. During the final quarter, gold prices declined with liquidity concerns and an overbought technical view dominating the market. Some took that as a sign that major players were exiting gold positions so as to cover holes in their balance sheets.

Contrary to gold, silver prices ended 2011 with a loss settling at $27.92 - a decline of 10.7 percent for the year. While silver prices peaked near $50 in late April, they never reached a new record high price. Some feel the industrial aspect of silver may have helped foster the decline as concerns mounted of a global economic slowdown. At present silver prices seem to have found support at around $26 per ounce. The sharp drop in silver prices has taken the wind out of some bullish sails, but fundamentals remain intact and friendly.

Gold rallied in the final session of 2011 and moved higher on the first day of trading in 2012. Indicators are issuing a possible buy-signal, but it would really help to see a little more follow through to the upside in order to coax additional confidence especially the 200 day moving average at $1,626. For now it looks like investors are again friendly to bullish gold and believe that the yellow metal will regain its ability to rally, finding legs.

Silver prices have gained well over the past few sessions, up sharply and back over $29.50. That is impressive and sets the tone for a move to $30.00. Silver prices also offer the additional attraction of having been beaten down more so than gold which may entice buyers seeking a rebound.

On the fundamental front, it seems apparent that governments will continue to print more money and concerns for economic growth remain. Meanwhile Iran is heating up with perceived threats regarding missiles, concerns over their nuclear capability and general saber rattling as Iran flexes their muscles. All of this helps firm oil prices and in turn adds a bullish flavor. Equities have risen and while the U.S. dollar remains in an uptrend, it has stalled and is fueling strength among precious metals. Long term, however, the situation becomes less clear. The major influences will remain the direction of the dollar, oil prices and the perceptions regarding European and US debt. Should the global economy fail to improve, that may encourage the aspect of metals as a store of value. Fundamentals haven't changed, and remain friendly for higher prices.

An area frequently overlooked as to its significance is the psychology of the marketplace. At present given the price drop the past couple of months in precious metal prices there are a growing number of skeptics for another bullish year ahead. There are also fears raised by the MF Global bankruptcy. That action shattered confidence as many traders faced margin calls, and others lost access to their positions. There is still a specter of missing money which further damages trust, yet beyond that interest is the relationship between gold and silver. Since silver prices have been more depressed, specs may be keen on their attraction to silver. Price levels are another element; Gold below $1,500 or above $1,700 could give a push just like silver over $30 or below $25.

Right now, the environment for investors still seems positive for precious metals. The sorting through the European Debt Crisis hasn't gone away. Although they still lack a solution the markets seem intent upon calming in an effort to restore at least a semblance of normalcy. Stocks are firm and economic news seems pretty friendly.

The real rate of return remains negative, with rates held low, and that should prompt more investment in metals. The present course of action looks for additional rounds of easing and currency devaluation, which should attract investors to precious metals as Gold and silver should tend to counteract any currency devaluation. Thus gold and silver are forecast as solid options against what is apt to come in 2012.


What many investors see now is an opportunity to buy. Markets have pullbacks. No market moves straight in any direction. These pullbacks, such as gold and silver experienced in late 2011, were likely started by large institutions needing to cover capital requirements. Those in turn shook out the weak handed and caused others to decide to cash in, yet overall things haven’t changed and the prospect is for another bullish set up for precious metals in 2012.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
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January 05, 2012, 06:57:58 AM

Some dipshit on these boards was projecting silver in the low $20's.  I resolved to buy some more if that happened, but now it seems unlikely to me.  But I'd be delighted if it did (assuming it was in the physical markets.)

My personal projection based on the periods of weakness over the past decade that I've been paying attention to PMs is that we'll have another quarter or so of consolidation and see-sawing in the current levels, then a pretty strong updraft to do it all again for another cycle.  I see no changes in the fundamentals which have been driving PMs upwards.

In the event of a monetary crisis I could see 2008-ish behavior in PMs, but if there was a strong sense that the crisis was severe enough to spell the end of the road for our current Western monetary systems and a re-boot is likely, I could imagine a mad rush into the PMs (and a lot of hassles with capital controls and related grief.)

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