It’s difficult to downplay the severity of the sell-off in gold. Just a week ago, the yellow metal closed at $1,805 an ounce. Since then, it’s fallen as low as $1,540 – a loss of 14 percent. Silver prices have performed even more dismally dropping 35 percent from a peak of $40 an ounce.
After the sell-off, gold is still up 15 percent on the year while silver’s just about flat. The scary part is (as Eric Fry at Daily Reckoning points out), U.S. Treasuries have actually out-performed precious metals! The 20+ Year Treasury Bond ETF (NYSE:TLT), for instance, is up nearly 25 percent since Jan. 1.
“That’s right,” Fry writes, “the debt securities of the now-AA-rated and heavily indebted US government remain the safest safe haven around.”
That’s a sign that investors are losing faith that the recovery we’ve been promised – despite the near-zero interest rates and the $2.3 trillion the U.S. government has pumped into the economy since 2008 – isn’t coming.
Fears of a 2008-style global financial meltdown feel almost palpable. In the words of Nouriel Roubini, we’re facing “unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.”
It’s hard to stand by your investments when you hear economists telling you to stock up on food and make sure you have access to an isolated safe house. The moves in gold prices have even hardened gold bugs wondering whether or not they should stick with the metal.
And no one seems to know for sure where prices are going to go in the near-term. Daily Reckoning’s founder Bill Bonner sees the potential for gold to tumble as low as $1,000. Momentum traders see gold prices touching $1,517 an ounce and silver hitting $22.45.
“Following this rebound (in gold prices), which I expect to get underway this week, there will be a longer slowdown,” GloomBoomDoom analyst Marc Faber told CNBC Tuesday. He says the metal could fall as low as $1,100 an ounce.
Famed commodities trader Jim Rogers seems to concur. “I have no idea what is going to happen this year. I doubt if it will go to $2000 an ounce in 2011, it is more likely to have a correction which will last for several weeks, several months,” he told India’s Economic Times.
Despite their dire warnings about gold prices in the near-term, though, all of the traders mentioned above are unanimous in arguing that this is just a temporary set-back for precious metals.
“Silver has been one of your favourites, but that is down 24% in the past week,” the Economic Times asked Rogers. “Are you still buying?”
“Not yet,” Rogers replied, “but if silver continues to go down as we have discussed before, I will buy more silver too. Do not sell your silver, do not sell your gold unless you are a short-term trader, but anybody who is in this for a long term, silver and gold will both go much higher over the next few years.”
While the pros haven’t started down-grading their gold price targets for 2012 yet, they’re certainly not saying we’re going to hit $2,500 an ounce anytime soon. One ominous research fact points that it could be a long time before we even see gold at $1,800 an ounce again: The gold market has only dropped 20 percent peak-to-trough twice in the past 10 years (per the Financial Times). It happened once in 2006 and once in 2008. In both instances, it took about 18 months for prices to re-touch their highs.
We’ll eventually see gold at $2,000 an ounce (reference my post 10 reasons why we’ll see gold over $2,000 an ounce). These dips are painful, but they’re definitely buying opportunities for patient and disciplined investors.
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Tags: gold price, gold price forecast, gold price predictions, Gold Price Target, silver price forecast
