How High Can Gold & Silver Go?

Taking into account 11 key measurements based on historical movements and price ratios, gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher. Let me explain. Words: 795

So says Chris Mack (tradeplacer.com) in a recent article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted into edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Mack goes on to say:

In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1,250 on gold and $20 on silver.

$1,500 Gold and $30 Silver By 2011
On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1,500 gold and $30 silver by 2011.

Gold and Silver Have MUCH Higher to Run
Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.

Gold
$10,226 – Current SGS inflation adjusted high 2015 with 6% inflation
$8,658 – Nasdaq 1995-2000, 6.66 factor
$7,949 – Gold 1975-1980
$7,689 – Current SGS inflation adjusted high
$7,240 – 1980 Dow to gold ratio of 1.5 to 1
$6,500 – 80% dollar devaluation
$5,430 – 1930′s Dow to gold ratio of 2 to 1
$4,719 – Nikkei 5yr 1985-1990, 3.63 factor
$4,697 – Adjusted by growth in money supply/gold supply
$3,618 – Current CPI adjusted high 2015 with 6% inflation
$2,382 – Current CPI adjusted high
$6,241.64 – Average

Silver 
$594 – Current SGS inflation adjusted high 2015 with 6% inflation
$447 – Current SGS inflation adjusted high
$434 – 1980 Dow to silver ratio of 25 to 1
$410 – 80% dollar devaluation and return to 1/16 gold
$276 – Adjusted by growth in money supply/gold supply
$200 – Silver 1975-1980
$184 – Current CPI adjusted high 2015 with 6% inflation
$139 – Current CPI adjusted high
$136 – Nasdaq 1995-2000, 6.66 factor
$102 – 80% dollar devaluation
$74 – Nikkei 5yr 1985-1990, 3.63 factor
$272.36 – Average

The above analyses are in keeping with the projections of 102 other prognosticators, the majority of whom see gold reaching a parabolic price peak of at least $5,000 (see here for the 102 individuals and their projections and herefor comments on Jim Sinclair’s $1 million dollar bet that gold will reach $1,650 by January, 2011), and silver going as high as $712 (see here for the rationale for such an extremely high price based on $10,000 gold and here for the reasoning behind James Turk’s contention that silver is going to $400 by 2015 and gold to $8,000).

While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the U.S. but are global. If the US dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970′s bull market in gold and silver was largely driven by U.S. buyers, a panic to buy precious metals within the next 5 years will be driven globally.

Conclusion
As I said in the opening paragraph, “gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher.”

Given what you have read above would you not agree that you should buy some (or more) gold and/or silver at the first sign of any temporary weakness in price? I certainly think so!

Gold's next hurdle is an inflation adjusted Peak

Read the Article here

What Does $1300 Gold Mean for Silver?

All eyes are on GOLD but the greater opportunity for percentage gains in in SILVER.

Alan Greenspan - Fiat Money Has No Place to go but GOLD

Alan Greenspan spoke at the Council on Foreign Relations earlier today, and what was his advice? That central bankers should be doing what these columns, among others, have been rattling on about, namely that they should be paying attention to gold. “Fiat money has no place to go but gold,” the former Fed chairman said at the Council, according to economist David Malpass, who quotes Mr. Greenspan in one of Mr. Malpass’ emails on the political economy. Mr. Malpass writes that the former chairman of the Federal Reserve’s board of governors was responding to a question in respect of why gold was hitting new highs.

Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,” as Mr. Malpass characterized Mr. Greenspan. “He’d concluded that gold is simply different,” Mr. Malpass wrote. At one point Mr. Greenspan spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes.* Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

To which, forgive us, one can only say, “Now he tells us.” The fact is that if Mr. Greenspan governed the Fed with an eye on gold, it wasn’t a particularly steady eye. He might argue that when he left the chairmanship of the Fed, in January 2006, he left a dollar worth a 400^th of an ounce of gold, slightly more valuable than the 461^st of an ounce of gold that it was worth when he came in nearly 20 years before. But in the first five years of the 21^stcentury, when he was in the last quarter of his years as chairman, the value of the dollar started its long collapse, plunging from the 282^nd of an ounce of gold that it was worth on January 4, 2000. In the years since, it has cratered to record lows once imagined only by such sages as Ron Paul.

Mr. Greenspan’s remarks at the council were not the first time he gave us a glimpse of his views on gold. He discusses gold on several pages of his memoir, “The Age of Turulence,” reminding that he once told a Congressional committee that “monetary policy should make even a fiat money economy behave ‘as though anchored by gold.’” He wrote that he had “always harbored a nostalgia for the gold standard’s inherent price stability.” But he confesses that he’s “long since acquiesced in the fact that the gold standard does not readily accommodate the widely accepted current view of the appropriate functions of government — in particular the need for government to provide a social safety net.”

The American people, he asserted in his book, have for the most part “tolerated the inflation bias as an acceptable cost of the modern welfare state.” And he claimed, “There is no support for the gold standard today, and I see no likelihood of its return.” We’ll hazard a guess that the statement makes him a man more of the past than of the future. But at least some politicians are hearkening to his advice about the price of gold. They’re people like Congressman Ron Paul and his son, Rand, who may yet be a senator, and Governor Palin, who was one of the first to warn about the gold price, and Congressman Paul Ryan, who asked Mr. Greenspan’s successor, Ben Bernanke about gold.

And, by the way, a few journalists, like Glenn Beck, who are students of history and just can’t believe their eyes that the dollar has plunged to the level it has with so few people raising an alarm. We are in a period when gold is more than a canary — to cite Mr. Greenspan’s bird of choice — it’s a full-throated rooster, cock-a-doodling at the top of its lungs. It was nice to see Mr. Greenspan mark the point at the Council. Would that he’d taken more of his own advice. And nice to see Mr. Malpass mark the Greenspan comments so prominently in his letter to his economic clients. He is more for a gold price rule in monetary policy than a gold standard, but we hope he makes another run for high office at the first chance, and presses the principle for all its worth. It’s what we need in the national debate, and none too soon

What Would $2000 Gold Be Worth?

Today, one of our readers (Jim) made a great comment worthy of further comment.  Jim said, "I'm not sure why you don't want to accept that gold is at a record high."

Let's imagine, Jim, that we are still on the gold standard and that gold is the money of commerce.  Would an ounce of gold today buy more than it would have in 1980?  

Let's refer to the example I made earlier.  In 1980, 10 ounces of gold would have bought a new luxury mid-size car carrying a price tag of $8,000 or so.  Today, you cannot buy a new luxury mid-size car for 10 ounces of gold, which when translated to dollars amounts to $12,500.  Even a Mini-Cooper carries a price tag of $20,000 for the basic car to $30,000 for the luxury version.  

Let's compare to another commodity.  A gallon of gas in 1980 was $1.25, an ounce of gold would have paid for 680 gallons.  Today at $3.00 per gallon, an ounce of gold would only buy 416 gallons.  

Now let's compare to income.  In 1980 the median income in this country was $17,710 per year.  In January 2010 after taking a monster hit since the credit crisis, that amount is still $46,026.  Or, in gold terms 20 ounces in 1980 against 37 ounces gold today.

Now let's work the numbers backwards.  To once again buy a luxury mid-size car with 10 ounces gold, gold would have to be $2500 to $3000 per ounce.  

To buy 680 gallons of gas, gold would have to be $2040 an ounce.  And, finally, in order for 20 ounces of gold to once again be worth a year's wage, gold would have to be worth $2,301 per ounce.

So, I say, in order for gold to match its record high of $1980, gold would have to reach these levels when deonominated in dollars to just to make the claim that gold is once again at record highs.  

I think it's a very important point to make precisely because all we hear is that gold is at record highs well above its previous record and that it cannot keep rising.    

We will get into more discussions on this but for now, let's settle on this fact.  Gold is not really an investment at all.  Since the early days of man and commerce, gold was a constant store of wealth.  It's not gold that fluctuates up and down in value, it is the currency against which gold is measured that fluctuates.  

People look at gold as being measured in dollars.  I look at dollars as being measured in gold.  And right now gold has a long way to go to reach its own record worth.

As inflation drives down the value of the dollar which in turn drives the cost of goods and services higher in dollar terms, gold will effectively maintain a constant value over long periods of time.  Right now gold is behind  the constant value curve and in my opinion needs to play a little catch up to say it has reached a record value.  

I believe this is the global perspective that is still driving gold demand at record levels.  If you want to stay ahead of the curve, follow the example the smart money is setting and grab a few gold coins to put in your retirement accounts.    

By Lorimer Wilson 
“Analyzing the long-term relationships of gold with other assets suggests that, in most instances, physical gold and silver and the shares of the companies that mine those precious metals have major upside potential – truly major – in the years to come.” 
So said Ronald-Peter Stöferle in a 71 page report* on gold he recently released. In an e-mail** to me he implored that I “spread the (golden) word” which I have done below, in Part 2 (access Part 1*** below), in a reformatted and edited [...] version for the sake of clarity and brevity and to ensure a fast and easy read. Stöferle went on to say: 

1) Dow/Gold Ratio Suggests Possible Future $10,400 Gold! 
At 8.5x the Dow/gold ratio is currently slightly above the long-term median of 8x. This means that gold is still relatively inexpensive in comparison with the Dow Jones. Bull markets tend to end in euphoria and excess, however, which is why we expect substantially lower values. 

In 1932 the ratio was 2x, and at the end of the last bull market the ratio was 1x. We think that values of 1-2x might be reached again as a result of the secular bull market. Under the assumption of a constant Dow Jones index, gold would therefore have to rise to USD 10,400/ounce. 

2) Gold/S&P 500 Ratio Suggests Possible Future $6,000 Gold 
Currently the gold/S&P 500 ratio is almost exactly on its long-term median of 1x. Looking at the development in the 1970s, we expect a dynamic increase. Bull markets do not end around the long-term median – they end in extremis. In order to reach 6x, gold would have to increase to more than USD 6,000/ounce given a constant S&P index. 

3) Gold/Silver Ratio Suggests Future Price for Silver Somewhere Between $75 and $650 
Currently the gold/silver ratio is about 65x and thus above the median of 55x albeit below the long-term average since 1970 of 68x. A low was hit in 1920, when 15 ounces of silver would buy 1 ounce of gold. 1940 saw a row of historical highs, when one ounce of gold bought 100 ounces of silver and we experienced similar values again in 1990. 

Looking back over the centuries, we find that gold has been substantially more expensive since the beginning of the 20th century than in the previous three centuries. The long-term median (since 1687) is 15.7x. This also reflected the actual ratio of physical supplies: gold is about 17 times more scarce than silver. According to USGS, the measured and assumed silver resources are about 6 times as high as the ones of gold. 

Therefore silver is at the moment clearly undervalued at a ratio of 65x relative to gold. 

[Using a gold: silver ratio of 16:1 equates to a price of $75 per ounce for silver based on the current ballpark price of $1200 per ounce for gold and suggests a price of $650 ) if gold were to reach a parabolic top of $10,400!] 

Silver is, like gold, a monetary metal, but the relevance for the industrial sector is much higher than that of gold. This is why silver tends to outperform gold in economic upswings, whereas gold usually outperforms silver in periods of stress. 

4) World Gold Mining Index/Gold Ratio Suggests Much Higher Prices for Gold and Silver Mining Shares 
Currently the World Gold Mining Index/gold ratio is 1.7x and thus above the long term median of 1.4x. A rise indicates that gold shares are outperforming gold. Since the beginning of the bull market shares gold mining shares have performed more or less in line with the gold price. 

5) Gold/Oil Ratio Suggests Possible Future Prices for Gold and Oil in Excess of $3,150 and $250 Respectively 
Oil and gold have a strong positive correlation with each other. Both commodities are traded in U.S. dollars and tend to increase when the dollar depreciates against the most important currencies. Also, oil is one of the most important indicators for inflation and thus also for the gold market. On top of that, the argument that oil production is about to see its peak (“peak oil”) can also be applied to gold along similar lines. The constant purchasing power of gold can also be measured in terms of this ratio. For example, one ounce of oil today buys the same amount of oil as in 1945, 1982, and 2000. 

The current ratio of 15-16x is slightly above the long-term median. The all-time high was set in 1973, when one ounce of gold would have bought 42 barrels of oil. On the other hand, in 2008 the ratio hit its historical low at less than 6 barrels per ounce. 

[Looking at the extremes if gold were to reach the $10,400 mentioned above a 42:1 gold:oil ratio would put oil at $250; the long term median ratio of 15-16:1 would put oil at an unbelievable $650-$700 per barrel; the extreme ratio of 6:1 would put oil at an astronomical $1,733.33 per barrel. Conversely, applying the 42:1 ratio to the current price range of oil between $75 and $80 would put gold at between $3,150 and $3,360 while, for what it is worth, a 6:1 ratio would put gold at between $450 and $480.] 

Conclusion 
The long-term comparison of gold and other asset classes paints a clearly positive picture. While many ratios are close to the median, this goes to show that the current valuation is certainly not excessive. It is therefore also very easy to rebut the heavily cited argument of the “gold bubble”. 

Bull markets end in euphoria, and this substantiates our argument in favor of an imminent transition to an accelerated trend phase [- to somewhere between $3,000 and $10,400 per ounce for gold, between $75 and $650 per ounce for silver and in excess of $250 per barrel for crude oil.] 

Courtesy: www.FinancialArticleSummariesToday.com 

BUY GOLD NOW!

By Jeff Clark, Casey's Gold & Resource Report

I get this question a lot: "Should I buy gold now, or wait for a pullback?" 

It’s a valid question. For nearly two years, gold hasn't had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold’s largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we've seen this summer is 8.2%. Technically the summer's not over, but I'll admit I'm surprised we haven't had a better buying opportunity. 

So, is now the time to buy? It depends on your honest answer to another question: “Do you own enough gold?” By “enough” I mean an amount that lends meaningful protection on your assets. By ”meaningful” I mean that no matter what happens next – another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending – you won't worry about your investments.

Whether you should buy now is almost irrelevant if you don't already own a meaningful amount of gold. If you earn $50,000 a year, how is one gold Eagle coin going to protect you if the dollar plummets and sends inflation soaring? If your investable assets total $100,000, is your nest egg sufficiently protected owning two gold Maple Leafs? This is all akin to buying a $50,000 insurance policy for a $500,000 home.

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will.

If you don't have at least 10% of your investable assets in physical gold, or at least two months of living expenses, you have your answer: Buy. Don't use leverage, don't borrow money, and don't buy with reckless abandon, but yes, get your asset insurance policy and tuck it away. And then start working toward 20% (we recommend a third of assets be in various forms of gold in Casey's Gold & Resource Report).

Back to the original question: should we buy now, or wait for a pullback?

The answer comes when you look at the big picture. If you pull up a 9-year chart of gold, what sticks out is that the price is near its all-time nominal high. One could be forgiven for thinking it looks toppy or at least ripe for a pullback. But I assert that the highs for gold have yet to be charted.

What will a gold chart look like after adding five years to it?

When projecting gold's potential price peak, there are many ways to measure it. Conservatively, gold reaching its inflation-adjusted 1980 high would have it topping around $2,400 an ounce. More radically, if the U.S. tried to cover its cumulative foreign trade deficit with its current gold holdings, gold would need to hit about $32,000/oz.

Let's take something more middle of the road, and apply the same trough-to-peak percentage advance gold underwent in the 1970s. (I think there's a greater than 50/50 chance it does more than that, given the precarious nature of the U.S. dollar.) Gold rose from $35 in 1970 to $850 in 1980, a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply that by 24.28 and you get a gold price of $6,214 per ounce.

Sound too high? Well, would it feel high if you had to pay $12.50 for a Big Mac? At $3.39 today at my local McDonald's, that's about what it would cost ten years from now if we get the same rate of inflation we had in the late 1970s.

So if gold hits $6,214, what might it look like on a chart if you bought today around $1,200?

$1,200 doesn't seem so pricey, does it?

I'm not saying there won't be pullbacks or that you shouldn't try to buy at lower prices. Just keep a big-picture perspective. Let's say gold falls to $1,100 and you're kicking yourself for having bought at $1,200… if gold reaches $6,200 an ounce, the profit difference between buying at $1,200 and buying at $1,100 is only 1.6%. If gold gets whacked to $1,000 (at which point I’ll be buying with both hands) the difference is still only 3.2%.

Heck, even if gold peaks at $2,400, you still get a double from current levels. (But unless government monetary policies immediately reverse course, gold isn't stopping at $2,400.)

So there's my answer. Yes, you have to accept my projection of gold's ultimate price plateau. And you have to sell at some point to realize the profit. But if the final chapter of this bull market looks anything like the chart above, I don't think you'll be too upset having bought at $1,200.

Carpe gold.