Gold, Silver, How High? and When?
Commodities / Gold and Silver 2010 Jun 25, 2010 - 12:31 PM GMTBy: DeepCaster_LLC
“The environment we’re moving into will steal money from the conservative, the prudent, the cautious investor – through currency debasement…[Investors] have to understand that they have to work to protect themselves because I see a time coming that’s going to be very painful. I hope it doesn’t come, but I think it will.” - Rob McEwen, CEO, US GoldCorp
“Despite another recent all-time high in the price of gold, in the current cycle, gold and silver prices have yet to approach their historic high prices, adjusted for inflation.”
“Inflation Update, Housing and Production”
John Williams’ Shadow Government Statistics, 6/17/10
Investors and Traders charged with deploying Assets to acquire Precious Monetary Metals are impelled to first Forecast the likely Future Course and Timing of the Price Moves of the Precious Metals, as they do with other prospective acquisitions. Then, they must actually Deploy Assets based on those Forecasts.
Therefore, it is important to make Educated Forecasts about Gold and Silver Prices. Specifically, one must forecast “How High?” (or “How low?”) and “When?”
Since there are simply too many variables (some of which are speculative) to address these questions comprehensively in this brief Article, we simply make several Key Observations useful in helping answer them.
First, generally speaking (though not in every trading session), Gold (and to a degree Silver) has been strengthening in recent weeks at the same time as long-dated U.S. Treasuries have been strengthening.
This tells us that Gold (and, to a degree – see below – Silver) is acting as a Hedge against Deflation as well as Inflation. (Indeed, it is generally agreed that Gold Serves as a hedge against Inflation.) So Gold does Double Duty regardless of the “Economic Weather”.
And the recent strength (record Nominal Highs in U.S. Dollar terms) of Gold (and Silver) also tells us that Gold (and to a degree, Silver) is functioning as the Ultimate World Reserve Currency.
Silver’s recent strength is also informative. Although Base Metals prices have softened recently, reflecting soft Industrial Demand. Silver Prices have remained Robust.
Since Silver is both a Major Industrial and a Monetary Metal, recent Robust Silver prices also show that Silver too is functioning as a Monetary Metal, Deflation Hedge, and “Deputy” World Reserve Currency.
Clearly, both Gold and Silver are serving as “Safe Havens” in times of Crisis, as they have for Millennia.
However, in light of the fact that the World has faced and still faces the Greatest Financial Crisis since the Great Depression, Investors must ask: why have These Precious Monetary Metals not yet surpassed (or even come close to – see below) their inflation-adjusted 1980 highs?
Our Regular Readers know the Answer – Cartel* Precious Metals Price Suppression.
*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2009 Letter entitled "A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques - II" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
But can such effective price suppression last? We make the case that Precious Metals Price Suppression Attempts will continue, and will be somewhat effective, but not as effective as in recent years and likely not sustainable. Consider the following:
So far as Cartel Price Suppressions of Gold and Silver are concerned, The Cartel’s motivations for this are clear.
To the extent that Gold and Silver become ever more widely recognized as the Ultimate Stores and Measures of Value, that tends to delegitimize the Mega-Banker’s Crown Jewels – Treasury Securities and Fiat Currencies. Thus The Cartel’s focus on Precious Metals Price Suppression.
But increasingly powerful forces should continue to impel Gold and Silver upward as Richard Russell explains:
“The public doesn't understand that the stock market is in the process of topping out. Even as business news turns rosy, stock holders are beginning to show losses. So while the public is losing money in the stock market, they are missing out in one of the greatest bull markets in history the gold bull market, which is now heating up. The smart money of the world is fleeing fiat currencies and loading up on gold as well they should.”
Richard Russell, Dow Theory Letters
So let’s consider just what those inflation-adjusted Gold and Silver highs could be. John Williams of Shadowstats.com provides a cogent answer:
“Even with the June 8th historic high gold price of $1,246.00 per troy ounce, the earlier all-time high of $850.00 (London afternoon fix, per Kitco.com) of January 21, 1980 was not breached in terms of inflation-adjusted dollars. Based on inflation through May 2010, the 1980 gold price peak would be $2,384 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $7,595 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.
In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce (London afternoon fix, per silverinstitute.org) has not been hit since, including in terms of inflation-adjusted dollars. Based on inflation through May 2010, the 1980 silver price peak would be $139 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $442 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.” (emphasis added)
“Inflation Update, Housing and Production”
John Williams’ Shadow Government Statistics, 6/17/10
What is immediately striking about these numbers is how far below the Inflation Adjusted Highs Recent Highs are.
It is important to consider just how far. As we write, Gold is trading around $1260/oz.
The Gold Price of $1260 is a mere 16.6% of the Real Inflation-adjusted 1980 high of $7, 595.
And the Silver Price at $19/oz. (as we write) is a mere 4.3% of the 1980 Inflation-adjusted high.
Yet above-ground stores of Silver are Small relative to Demand and are depleting!
These figures show how effective The Cartel has been in suppressing Precious Metals prices in recent years.
These numbers also gives us an important Clue regarding the potential highs for Gold and Silver.
From an historical and Supply perspective, Silver is a better Buy now than Gold (But given the figures above, both are Sweet Deals).
This Historical Trading Ratio of Gold to Silver in Price is 16:1. But recently it has been 68:1 up from 64 in December, 2009.
And while there are about 5 billion ounces of above-ground Gold extant today, there are only 1 billion ounces of above-ground Silver left (Prior to WW2 there were 10 billion above-ground ounces of Silver) And Silver is not only a Monetary Metal, it gets widely used, and used up, by Industry.
So today, Silver would seem to have much higher price Appreciation Potential than (the admittedly very high Price Appreciation Potential of) Gold EXCEPT that it is, a smaller, and, if anything, a more heavily manipulated (by The Cartel) Market than Gold.
Thus in light of repeated Cartel attacks on Gold and Silver Prices in recent years, Deepcaster has developed a Strategy to Maximize Profits and Minimize losses from these Cartel Price Suppression attacks. Key Aspects of that Strategy are:
A. Recognizing that while The Cartel is still Potent, it is significantly less potent than it was even a few months ago due primarily to:
a) The years-long efforts of the leaders and members of GATA in exposing Precious Metals Price Suppression
b) The stunning Allegations that Major Gold Repositories do not have nearly as much Physical Gold they say they do. See the following allegation regarding GLD and Deepcaster’s recent article (in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com) regarding the allegations concerning the London Bullion Market Association.
“…another CNBC guest, David Lutz, managing director of the Stifel Nicolaus brokerage and investment banking firm in St. Louis, having been asked for his recommendations in regard to gold, disparaged the gold exchange-traded fund GLD as follows: "I wouldn't necessarily look at the GLD because they don't invest in the physical gold.””
“CNBC, GLD is dissed for not investing in physical gold”
Chris Powell, GATA, 5/12/10
These reports are doubtless leading Major Gold Investors to demand Delivery and possession of Physical Gold.
B. Thus we recommend that Investors follow their lead with a significant portion of the funds you allocate to Precious Metals purchases committed to purchasing, and taking Personal Delivery of, Physical Gold and Silver.
Indeed, because Physical held in one’s personal possession is so precious, some forms of it trade at as much as a 20% premium to the spot price of “paper” Gold.
But not all forms of Physical are Equal, as it were.
Some forms are much more liquid than others, and some are much more susceptible to counterfeiting, as e.g. by Tungsten-lacing.
Deepcaster has recently recommended Purchase of One Form of Physical Gold (and Silver), that is quite liquid, not easily susceptible to counterfeiting, and commands a considerable premium over the spot price of Paper Gold (and Paper Silver). See Deepcaster’s Alerts “Real Moves & Fake-outs Launching; see Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds; & Buy Reco.” (week ending 5/14/10) and "Cartel Failing? Precious Metal Buy Reco! Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & Bonds" (week ending April 16, 2010) in the ‘Alerts Cache’ at www.deepcaster.com.
C. Do not give Short Shrift to Gold and Silver Miners.
But purchasing shares of these should be done with particular care, because, being “paper” (or, usually, electronic entries on some remote server) Miners shares are especially vulnerable to periodic Cartel attacks and Price Takedowns
Thus, they are most profitably accumulated near interim lows resulting from Cartel Interventions.
In order to estimate these interim lows one needs not only to consider Fundamentals and Technicals, but also Interventionals.
D. Buy the Dips! And as for determining approximate interim bottoms of these dips, Deepcaster has developed helpful Guidelines (See “Defeating the Cartel... With Profit, Part 2” (6/19/2009), “Defeating the Cartel... With Profit, Part 1” (3/28/2008) and “Profiting From Cartel Intervention” (06/30/06) in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com) to enhance the chances of buying at the right time, and thus maximizing profit. And for Deepcaster’s latest Forecasts for Gold and Silver Prices, see our latest Alerts in the ‘Alerts Cache’ at www.deepcaster.com.
E. Finally, we recommend that Investors not keep their Physical Gold and Silver in Bank Vaults for the following reasons enunciated by Jim Rickards.
“Interviewed by Eric King of King World News, Jim Rickards, senior managing director of the Omnis Inc. consulting firm in McLean, Virginia, says:
-- Far more claims to gold have been sold than can be delivered upon.
-- To save the dollar the United States will be forced back on a gold standard with convertibility and gold revalued to $5,500 per ounce.
-- China's need for gold to back its own currency and hedge its U.S. debt exposure is massive but the metal isn't available even as the Chinese government is commandeering the output of Chinese mines.
-- And gold owners should keep their metal in vaults not operated or controlled by banks, since keeping gold in bank vaults negates gold's purpose as a wealth preserver outside the banking system, which is vulnerable to a run on gold banks.”
“Don't keep your gold in bank vaults”
Jim Rickards, King World News via GATA, 4/13/10
In sum, had the price of Gold not been suppressed, and in light of the ongoing Economic Crisis, it should already be priced in excess of $7,600/oz (and Silver in excess of $450/oz), the approximate 1980 inflation-adjusted highs.
It is reasonable to expect to see those prices in the next very few years, or sooner, given the Cartel’s recently impaired ability to sustainably take down Precious Metals Prices.
The Gold and Silver Bull Market has only just begun.
Best Regards,
By DEEPCASTER LLC
www.deepcaster.com
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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