Look for silver prices above $50 an ounce in Q4 2012

$70 an ounce by the end of the year? Chris Marchese goes on the record with his predictions for silver prices in 2012.

Most investing commentators are wary of going on the record with gold and silver price predictions – particularly if they’re suggesting a specific timeline when we might see those prices. Chris Marchese, a contributor to The Morgan Report, doesn’t have those reservations.

In a recent interview with The Gold Report, he called out prices and timelines: “I think in Q412, we’ll break $2,000 an ounce in gold and $50 an ounce in silver,” he says. “It could run up as far as $60–70 ounce just because of the technical buying and no overhead resistance at $50 ounce. Toward the end of 2012, it could be $55 ounce silver and $2,100 ounce gold.”

Why is he so bullish on gold and silver? Largely because he believes the “recovery” we’ve been reading about has just been manufactured by the creation of more debt. The government may say that real GDP is growing, Marchese says, but that’s largely thanks to government spending.

On top of that, Marchese tracks what he calls “True Money Supply.” That’s the sum of all money that’s available to be spent in the U.S. It’s been expanding at an alarming rate – somewhere between 10 and 15 percent a year over the past three years.

The true driver for higher gold and silver prices this fall, though, will likely be the presidential election in November. If the economy’s showing the slightest sign of weakness, Marchese believes “Bernanke will do everything in his power to make Obama look good to get re-elected.”

Of course, not everyone agrees with Marchese’s outlook. Earlier this week, Citigroup Inc. sent a research note to investors predicting silver prices would actually fall 10 percent by the end of 2013. The bank cited heavy “conviction calls” betting against silver as one of the reasons. On top of that, they believe gold will outperform silver since it functions almost wholly as a precious metal.

I disagree on both points. I don’t think investors will shun silver in favor of gold – particularly with gold prices near $1,650 an ounce.

From the supply and demand side, it is troublesome that miners are pulling more silver out of the ground than ever before (some 3 percent more than they did in 2010). But, betting against silver right now is essentially making a “conviction call” that the dollar will not retreat any further, quantitative easing won’t be necessary in the future and inflation will remain tame. I’m just not prepared to make that bet.

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