Look for gold prices to average $1,225 in 2014

Goldman actually says they see gold prices heading lower for the next two years. It’s hard to argue with them when the metal’s hovering near a 6-month low, and 2013 marked the first annual decline for gold in a decade.

British banking giant Standard Chartered just lowered its gold price forecast by 8 percent according to Metal.com. They’re looking for the yellow metal to average $1,225 this year. That’s nearly 5 percent off the current price ($1,278 at the time of this writing).

Gold prices have been volatile this year rising from $1,220 to $1,340 in an almost vertical climb that started with the new year. That was good for a 10 percent gain. Since then, gold’s given half of those gains back. If Standard Chartered is right, the price is going to keep falling.

SC joins a chorus of big banks that are arguing against the yellow metal. Goldman Sachs (GS) recently reiterated its year-end price target for gold of $1,050. That would be a drop of nearly 20 percent from today’s prices.

I don’t think the price decline will be that steep, but I can’t join in with the gold bulls. I find it interesting that silver and gold prices have continued to trend down despite the ongoing crisis in Ukraine. If that can’t generate some ongoing safe-haven buying, we’d need an all-out war to drive up gold prices and that’s something no one wants to see.

Goldman actually says they see gold prices heading lower for the next two years. It’s hard to argue with them when the metal’s hovering near a 6-month low, and 2013 marked the first annual decline for gold in a decade.

There are just too many headwinds for metals right now. The economy’s improving, inflation is low and the Fed’s talking about tightening monetary policies. While I do believe the government has flooded the economy with too much cash to avoid an extended period of inflation, that inflation isn’t coming in the near-term. Until it does (or the Fed announces some new form of QE) look for investors to put their cash elsewhere. In the interim, I’m betting on bitcoin. Check out my post Bitcoin inflation hedge: The new gold and silver.

Gold prices low and headed lower

Much like silver, gold prices are flirting with four-month lows. There’s a lot of reasons why. You just have to pick your favorite poison. Here are nine of them.

Much like silver, gold prices are flirting with four-month lows. There’s a lot of reasons why. You just have to pick your favorite poison:

1) October’s inflation numbers were extremely low at 1 percent.

2) There’s a perception that the Federal Reserve could taper its bond-buying program sooner than expected. In recent meeting minutes, officials seemed to support tapering even if the job market doesn’t improve substantially.

3) The job market’s holding up better than analysts thought. “Individuals filing for initial jobless benefits in the U.S. last week fell by 21,000 to a seasonally adjusted 323,000, beating expectations for a decline of 9,000,” Investing.com reports.

4) There’s a bull market in stocks. That makes it hard to hold cash in gold and silver when you’re watching other asset classes outperform – especially with the Nasdaq up more than 30 percent YTD.

5) China’s contributing to record gold production. “Mining production in the country surged by 4.9% to a good 253 tons in the first nine months of the year,” according to the China Gold Association (source).

6) The Venezuelan central bank is selling 45 tons of gold to Goldman Sachs through 2020. Look for that metal to hit the market further depressing prices (source).

7) ETFs are driving prices down faster than they might have otherwise fallen. Investors can move in and out of gold (via ETFs) faster than ever before. That creates a feedback loop in the physical markets. ETFs sell off and more gold floods the market driving prices down further and prompting more people to sell off their ETF holdings.

8) Gold selling was so heavy on Thursday that the Comex actually halted trading of the metal twice. Resource Investor reports that the exchange was hit with some $200 million in simultaneous sell orders.

9) Speculators could be moving into bitcoin as a proxy for gold and silver. Check out my post: “The case for bitcoin at $100,000.”

The bleeding will stop eventually, but I wouldn’t be “bargain-hunting” right now. Buying into falling prices is the easiest way to dig yourself into a hole. That’s called “catching a falling knife” for a reason. Wait until prices “base” or flatline to consider accumulating gold. In the meantime, take a look at bitcoin in my post Bitcoin inflation hedge: The new gold and silver.

The case for bitcoin at $100,000

If bitcoin really is Gold 2.0, the digital currency could push gold prices down to $300 an ounce and bitcoin could rocket up to $100K.

The Winklevoss twins went on the record on Nov. 12 saying they believe bitcoin could hit a market cap of $400 billion. At the moment, there are nearly 12 million bitcoins in circulation, that would make them each worth $33,333. And that’s the Winklevoss’s “conservative” estimate.

“The small bull case scenario is a $400 billion market cap. So the market cap is around $4 billion right now,” Tyler Winklevoss said in an interview at the DealBook conference that aired on CNBC’s “Squawk Box.”

Their “small bull case” is $400 billion. What’s their “big bull case?” The Winklevoss’s don’t say, but they do argue that bitcoin shares a lot of similarities with precious metals.

“Some people definitely view it as Gold 2.0,” Tyler says. “As a store of value, it definitely has the properties of gold and people are viewing it that way.”

So, let’s take a peek at the investment markets in gold and silver to see if we can get a sense of just how big the bitcoin market could grow. According to the World Gold Council, the total investment market for gold stood around $1.2 trillion in 2010.

The gold council also shows that investment demand for gold GREW by roughly 1,483 tonnes between 2008 and 2012. With gold averaging $1,100 an ounce over that period, we can say the investment market for the yellow metal grew by $52.2 billion or just over $10 billion a year. That means that by now, the gold market’s worth $1.5 trillion at 2010’s much-lower prices.

I can’t find great numbers on the total size of the silver investment market, but I’ve seen rough estimates that say the silver market is about 1/60th the size of the gold market. That would put it around $25 billion. So, the combined gold and silver investment markets are worth somewhere around $1.75 trillion. If 25 percent of that cash moved into bitcoin, we’d see that “small bull case” the Winklevoss brothers talked about. On top of that, gold would be trading around $970 an ounce (a price we last saw early in 2010).

Let’s say bitcoin really is Gold 2.0 and prices for gold tumble back to $300 an ounce – a level where the metal languished for some 20 years from the mid-1980s to the early 2000s. In that case, $1.3 trillion would flow into bitcoin. If that happened today (and there were only 12 million bitcoin in circulation), each bitcoin would be worth $108,000.

Of course, things get even more interesting when you consider the fact that if bitcoin truly is here to stay, everyone’s going to want some to make purchases and payments, so the market could get even larger. There you have it; the case for bitcoin at $100,000+. Please note that this is NOT a price prediction or forecast for bitcoin. It’s just a hypothetical “what if.”

Interested in learning more? Check out my post on How to buy bitcoin.

Gold price forecasts and predictions for 2014

The yellow metal’s heading toward its first annual decline in 13 years. And has investors wondering when the bleeding will stop. The short answer? Don’t look to 2014 to solve gold’s troubles. Here’s a survey then of the leading gold price predictions for 2014.

Gold prices have been battered in 2013. The yellow metal’s heading toward its first annual decline in 13 years. And that has investors wondering when the bleeding’s going to stop (or if it even will). Let’s take a survey then of the leading gold price predictions for 2014:

  • $1,403 an ounce. That’s the likely average annual gold price in 2014 according to the Economist Intelligence Unit (per ArabNews), which is part of the Economist Group. The EIU expects prices to weaken further in 2015 to $1,350.
  • $2,000 an ounce within a year. Those are the words of gold bug Peter Schiff, a famed investor and manager of the Euro Pacific Capital Inc. gold mutual fund (which has lost 6 percent since it launched earlier this year). Schiff told Bloomberg “he would ‘be amazed’ if the U.S. dollar didn’t collapse and gold failed to skyrocket before President Barack Obama leaves office in 2017.”
  • $1,144 per ounce in 2014: That’s Goldman Sachs’s bearish prediction for the yellow metal. Goldman believes that trend will continue for years to come.
  • $1,050 an ounce: An even more bearish prediction from yet another gold bear at Goldman Sachs: Jeffrey Currie, the company’s global head of Commodities Research. He went so far as to call gold a “slam dunk” sell (Bloomberg).
  • $1,500 an ounce in the short-term: That’s from Bank of America Merrill Lynch’s Head of Global Technical Strategy MacNeil Curry (source). So long as gold doesn’t close below $1,251 an ounce, Curry believes we’ve turned the corner from a bear market to a bull market in gold (he’s one of the few!).
  • $1,313 an ounce in 2014: That’s Morgan Stanley’s prediction for gold prices in 2014. They revised that down from $1,420, and they believe prices will continue to fall until 2018 (per the Telegraph).
  • $1,275 an ounce: That’s BMO Research’s gold outlook for 2014. That was revised up from from $1,181 (per AgMetalMiner).
  • $2,500 an ounce in 2014: The bull’s crown goes to Market Oracle, which lays out a lot of reasons why they believe gold prices will surge next year. Specifically, they cite closing mines, which will lead to a supply shortage, increased demand in India and Asia, inflation and a coming “gold mania.”
  • $1,322.50 an ounce in 2014: That’s from a poll of 22 analysts conducted by Reuters last month (per LiveMint). Physical markets, not investment markets, will likely drive gold prices analysts said.
  • $1,175 an ounce by Q3 2014: That’s according to a Bloomberg analysis of estimates from the “10 most-accurate precious metals analysts” the company tracks (per IOL).

Of course, there’s nothing that actually says gold prices have to move higher. The precious metals markets need a catalyst to fundamentally change the current direction (which is inexorably lower). If indeed we do see higher gold prices in 2014, look for some or all of the following precursors to foreshadow the move:

  • An increase in economic stimulus from the Federal Reserve or congress.
  • A sudden jump in inflation.
  • Short covering (traders who are betting against gold start covering their bets).
  • Growth in physical demand for gold bullion.
  • Aggressive buying by central banks.
  • A supply shortage due to mine closures.

Top 10 gold price predictions for 2013

My personal opinion? Gold likely bottomed at $1,200 recently, but don’t expect spectacular gains through the end of the year. Precious metals need a big catalyst to move higher aggressively.

-Posted by Alejandro Guillú Mendoza

Introduction
Many people around the world want to know the answer to the question, where are gold prices going?

I invested many hours browsing the internet searching for answers to this question to save you time and money because time is money.

Have another question? Drop me a line. I only answer questions regarding money. Please don’t ask me where your lost dog is or why your boss fired you.

Here are my findings when I searched for the Top 10 gold price predictions for 2013:

1) $1,487 Morgan Stanley

The 15th-leading investment services company in the world downgraded its forecast 16% to $1,487, according to the Wall Street Journal.

Peter Richardson said speculation of selling by European Central Banks and nervousness over the possibility that the United States of America Federal Reserve will end its QE earlier than December 2013 are also top contributing factors.

2) $1,530 David Morgan

David Morgan is the publisher of The Morgan Report and creator of silver-investor.com which has been featured on CNBC and Fox Business.

Bernice Napach of the Daily Ticker has written more about this. You can watch the seven-minute video here.

3) $1,550 Goldman Sachs

The second-leading investment services company in the world downgraded its six months forecast to $1,600 from $1,805 and its twelve months forecast to $1,550 from $1,800, according to the Wall Street Journal.

The recent sell-off was “likely excessive,” and it has “exposed a quickly waning conviction in holding gold positions, especially ETFs.”

4) $1,637 Deutsche Bank

The bank lowered its forecast last month 11.8% to $1,637, according to Fox.

“Given our forex strategist’s expectations for continued strength in the U.S. dollar and our U.S. economist’s forecasts for an acceleration in gross domestic product growth going forward, we expect that gold will struggle to appreciate meaningfully against the U.S. dollar.” – Daniel Brebner

5) $1,700 HSBC

The bank lowered its forecast 3.5% from $1,760 to $1,700, according to Reuters.

“Later in 2013, we expect monetary easing, escalating currency wars, and geopolitical tensions to support gold prices up to $1,800 an ounce.”

“Increased inflationary expectations should buoy gold.”

“Any price drop below $1,600 per ounce may stimulate jewelry, coin and small bar retail demand in price-sensitive economies.”

“Further ETF or Comex liquidations could put additional pressure on gold prices.”

6) $1,880 Aubie Baltin

Check out this article: 5 reasons Gold Will Set an All-time Record in 2013. I’m not sure I agree, but the title’s pretty bombastic…

7) $2,200-$3,000 Jason Hamlin

Jason Hamlin is the President and Founder of GoldStockBull and more importantly, one of the Opinion Leaders in the Gold & Precious Metals category at Seeking Alpha.

Pent-Up Potential For Precious Metals in 2013 is an interview by The Gold Report where he discussed his prediction.

8) $10,000 Societe Generale

“With some rare exceptions … analysts don’t like to stand out from the crowd. It is dangerous and career-challenging. In that vein, we repeat our key forecasts of the S&P Composite to bottom around 450, accompanied by sub-1% US 10-year yields and gold above $10,000.” – Albert Edwards

Read more in Doomsday? SocGen Predicts S&P to 450, Gold at $10,000 by Sam Mamudi.

9) Franklin Templeton

The tenth-leading investment services company in the United States of America does not offer a specific numeric forecast. However, they believe the price of gold will go up. You can read their recent financial analysis here.
Keep in mind only eight investment services companies in the world make more money than them.

10) Hebba Investments

Hebba Investments is one of the Opinion Leaders in the Gold & Precious Metals category at Seeking Alpha and although he does not offer a specific numeric forecast, he believes the price of gold will go up. You can read his recent financial analysis here.

My personal opinion? Gold likely bottomed at $1,200 recently, but don’t expect spectacular gains through the end of the year. Precious metals need a big catalyst to move higher aggressively.

How low can gold prices go? Has the rebound arrived?

On April 15th, the price of gold dropped $140 in one day when Goldman Sachs drastically reduced its average price forecasts and recommended a short Comex gold position for their clients. Things have been shaky ever since.

Introduction

For many years, people have relied on gold as being a stable and worthwhile investment in an otherwise constantly fluctuating market. Back on Sept. 5th of 2011, gold reached an all-time high of $1,900.30 per ounce and was considered a mandatory component in every investor’s portfolio. Unfortunately, it dropped drastically to $1,690 the following year and is currently being sold at only $1,340 an ounce. The price of gold has been dropping quickly since it hit its peak two years ago, but most investors are more interested in the question: How far will it fall before it starts to rebound again?

Gold Fell to $1380 in Mid-April

On April 15th, the price of gold dropped $140 in one day when Goldman Sachs drastically reduced its average price forecasts and recommended a short Comex gold position for their clients. This immediately brought the price down to $1395 per ounce, which dropped even further the following day to $1380. Fortunately, less than two weeks later, Goldman Sachs decided it was time to close out the gold shorts that were previously recommended and the price of gold has been wobbling between $1,200 and $1,400 an ounce since.

Lower Price Expectations for Gold

The recent collapse in gold prices, however, caused the UBS investment bank to downgrade its price expectations for all precious metals. Gold has displayed great resilience at these lower levels in the past, which has prompted several long-term holders to actually add to positions. There are also some strong signals of converting ETFs and metal accounts into allocated holdings. For additional information on the views of the UBS in regards to the decline in gold prices; please read “Gold market needs time to heal.”

Gold Should Go Up from Here

Forecasted gold prices for the end of the year range between $1,480 and $1,700 per ounce. HSBC has the most optimistic estimate for the year at $1,700, and Mitul Kotecha (Credit Agricole’s head of foreign exchange strategy) is predicting that gold will finish the year at $1,480 and drop to $1,318 in 2014. Most experts feel gold has dropped as low as it will go in the near future, and a MarketWatch survey of ten different forecasts shows that all predictions for the average price in 2013 are higher than its current price. In the same survey, over a half of the 2014 price predictions are also above the current price of gold.

Although gold is down almost 25% since it reached its peak in 2011, there are several indicators that it won’t drop much further. It has been rebounding the last few weeks and should continue on an upward trend for the remainder of 2013. It may drop back down again in 2014, but not as low as it reached in the middle of April.

Has the gold market bottomed in 2013?

Several little-know macroeconomic factors are changing the global supply and demand of gold. Read on to find out what they are.

-Posted by Alejandro Guillú Mendoza

Introduction

This article tries to explain in a simple way to readers without a college degree in economics or finance some macroeconomic factors that are currently changing the global supply and demand of gold. They’re not often talked about, but they are very important to understanding the precious metals market!

Ground rules

Gold coins ARE NOT INVESTMENTS. Gold coins are still minted by countries to satisfy the unlimited demand for numismatists around the world. When you acquire a gold coin you are not only paying for the precious metal itself but also for the graphic design and for the minting.

Countries make billions of dollars each year buying gold by the ton and reselling it as coins.

There is nothing wrong with collecting coins if you ARE ALREADY A MILLIONAIRE. If you are not, then you need to sell your coin collection right now to the highest bidders.

The problem with gold coins is that you need to pay for insurance each year, and that cost eats some of your profits.

If you want to invest in gold then you need to buy either a gold mine or the ETFs IAU or GLD.

There are other financial instruments for more sophisticated investors that I am not going to cover in this article. If you want me to write about them then drop me a line.

Mexico is now a bullion superpower with a little help from Carlos Slim Helú

Only ten countries in the world produce more gold than Mexico. However, the annual gold production has grown at double-digit rates in 2005, 2006, 2008, 2010 and 2011.

Unlike other countries, in Mexico you don’t own the gold in your own land. If you find gold in your backyard then the government takes it. There is no such thing as a Mexican prospector.

There is no point in using modern technology to search for gold mines in Mexico and buy the land to make literally a ton of cash. As you can imagine, there is little demand for a geologist in Mexico because you cannot monetize the natural resources.

After over 300 years of gold mining, the United States of America, Peru and Canada remain the third, sixth and seventh largest gold producers in the world. Mexico is very similar to those countries from a geological point of view but nobody has mined that gold yet. In other words, there are mountains of gold in Mexico.

The supply of gold in the continent of America is too vast and unlimited if you consider the current global demand. We have enough gold to pay the entire debt of every country in the continent of America to the rest of the world.

Each year we find faster and cheaper ways to extract gold. Innovation also applies to the extraction of gold. One very important factor that you need to consider is that gold is usually found in very remote locations very far from civilization. Gold mines invest a lot of money in diesel to transport the precious metal to the nearest DHL, UPS or Federal Express location.

Electric cars will only increase the profits of gold mines in the coming years.

After the 1994 economic crisis in Mexico, experts were hired to avoid another economic crisis in the future, and one of the suggestions was to allow billionaires and foreign, publicly-traded mining companies to extract the gold and save it for a rainy day.

Fresnillo (London: FRES) is now a FTSE 100 company and the 30th-largest diversified metals and mining company in the world, according to Forbes. Annual profits are over $700 million. It is not a bad idea to set up a limit order to buy this company at $1,000 in case the price drops from current levels due to a panic sell-off.

Mexico currently holds over 125 tonnes of gold, and they will keep buying gold from Fresnillo and other mining companies currently operating in Mexico until the gold reserves are over 365 tonnes, which is what Venezuela currently holds.

Mexico is one of the richest countries in the world, and with over $170 billion in foreign exchange reserves, they certainly can afford to buy more gold. This “I will buy any amount of gold that you can extract” will attract a lot more gold mining companies. They don’t even have to invest any capital. Mexico will lend them any cash they may need to install the mine, and they can pay for the loan in gold.

You cannot even pay for your MasterCard at Bank of America with a gold coin, let alone a billion-dollar syndicated loan if you are a mining company. Unless Russia, South Africa, Peru, Canada, Indonesia, Uzbekistan and Ghana start a Golden Arches Bank where foreign publicly-traded mining companies like BHP Billiton (BHP) and Freeport-McMoRan (FCX) can apply for a billion-dollar loan to build new gold mines, everybody will just move to Mexico.

What is a Gold Mart?

India likes gold jewelry a lot. In fact, they buy more gold jewelry that anybody else with the exception of China.

One smart way for China, Australia, the United States of America, Russia, South Africa, Peru, Canada, Indonesia, Uzbekistan, Ghana and Mexico to increase exports of gold jewelry is to simply lend money to young entrepreneurs in Pakistan, Nepal, Buthan, Burma, Bangladesh, Sri Lanka and the Maldives to open a Gold Mart franchise.

The fictional Gold Mart franchises will be strategically located in cities near the border with India to encourage small business owners to buy gold jewelry and sell it to consumers in India.

Each Gold Mart will include a large selection of jewelry from small companies that just don’t have the infrastructure to export small quantities of gold jewelry to India. Each country will handle the logistics to ship their products near the largest market for gold jewelry. This will create a lot of jobs in the gold jewelry industry and a lot of tax revenue.

Obviously, I am not a consultant for any of the countries previously mentioned, but I am sure they hired people way smarter than me to help them keep the demand for gold high and they will come up with a lot more clever solutions to export more gold jewelry to India.

I am just a regular guy. Countries have entire armies of consultants just thinking how to solve their problems all day long.

Conclusion

India cannot force their people to stop wearing gold jewelry, but they can systematically sell their gold reserves every time the price of gold goes up more than usual until their reserves are depleted.

Gold stored in vaults does not produce any cash (unless of course, you lend the gold)

You can also lend shares in gold mines. Perhaps it is time for India to invest in the Ghana Stock Exchange, the Uzbekistan Stock Exchange and the Indonesia Stock Exchange. Just a thought.

As always, be prepared for volatility in the gold market, no matter what you do, and never allocate more than 30% of your portfolio to precious metals. Remember, gold is a hedge against a currency collapse, and no one can guarantee there will actually be a currency collapse. Preserving your capital should always trump the desire to make large profits!

Photo by TheRivo

IBD likes platinum; not gold or silver

Platinum has outperformed gold and silver in the short-term and over the past year. That bodes well for the future of the industrial metal.

And the newspaper gives five reasons why:

  1. Platinum has outperformed gold and silver in the short-term and over the past year.
  2. Strong car sales mean higher platinum prices, particularly since 40 percent of mined platinum goes into catalytic converters.
  3. Mine strikes in South Africa have seriously dampened platinum supplies.
  4. Mining costs have out-stripped platinum prices for a lot of companies – a fact that will likely lead even more producers to cut their platinum output.
  5. Growth in China means more platinum jewelry sales.

Source: Investors.com.

Three reasons $6,000 gold makes sense

If we look at gold from the perspective of an offensive buyer, their predictions of $6,000 gold start to make some sense. Here are three reasons why $6,000 gold just might come about.

Despite accusations that it’s a worthless chunk of metal, gold prices have risen for the past 12 years. That’s more than a decade of net buying, and those buyers must have a good reason to keep pushing up gold’s price.

In general, I break gold buyers into two camps: defensive buyers and offensive buyers. Defensive buyers are temporarily trying to protect their wealth from effects of inflation. Offensive buyers are the so-called “gold bugs” – the investors who believe that we’re in the midst of a financial crisis that can only be resolved in one way: a string of sovereign defaults. Those offensive buyers don’t plan on selling until we have some new, multi-national gold-backed monetary system.

If we look at gold from the perspective of an offensive buyer, their predictions of $6,000 gold start to make some sense. Here are three reasons why $6,000 gold just might come about:

1) A solid track record. $6,000 sounds like an awful lot of money, but that’s actually just 4 times higher than gold’s current price around $1,590 an ounce. During the 1970s, gold went up 24 times. If we look at gold’s starting point 12 years ago around $250 an ounce and multiply that by 24, we end up at $6,000 an ounce. Gold went up that radically in the past, so it can surely happen in the future.

2) The Dow/gold ratio. Historically, the Dow/gold ratio tends to revert to 2:1. At the time of this writing, the Dow Jones Industrial Average stands at 12,835 and gold’s selling for $1,591. That’s a Dow/gold ratio north of 8. If the Dow were to stay at its current levels (floundering sideways in the years to come), and the Dow/gold ratio were to return to historical means, we’d be looking at gold at $6,000 an ounce.

3) Sovereign defaults seem imminent. It’s hard to believe there are countries with debt that rivals our own, but Greece is under the magnifying glass. The Eurozone “is on a path that leads to eventual dismantling,” Peter Tchir of TF Market Advisors wrote in a note to clients on Monday (per IB Times), and Greece looks like it’s poised to be the first domino that falls. Sunday’s election in the country is still yet to yield a coalition government. That’s prompted warnings from the EU “that Greece would get no more payments from the $170 billion deal approved in March if it did not enact roughly $15 billion in cuts by June” (per USAToday).

If Greece stops getting bailout cash, the country would slide into default within weeks. That might not happen in June, but it seems imminent, and it would certainly raise doubts about the future of the Euro.

If people start doubting the future of a currency, gold will get a shot of adrenaline that’ll push it up rapidly. Throw a few currency defaults into the mix and there are few places besides gold to stash your cash. Viewed in that light, $6,000 gold seems more and more likely.

Related

Will mushrooming supply crush gold and silver prices in the years to come?

One of the most common arguments bears levy against gold and silver is the fact that record prices mean more gold and silver mines. With those mines, they argue, comes a glut of supply.

One of the most common arguments bears levy against gold and silver is the fact that record prices mean more gold and silver mines. With those mines, they argue, comes a glut of supply that could crush the precious metals markets.

One of the leading voices in this debate is Dr. Paul Walker of precious metals consultancy GFMS Thomson Reuters. At a conference last week in Dubai, Dr. Walker pointed out that it takes some $120-$150 billion of investment demand every year just to keep gold prices flat – not to mention see prices climb higher (per Resource Investor).

That a lot of cash to maintain a baseline, and I would argue that bodes well for silver prices.

“The amount of silver that’s available for investment each year is 450 million ounces and the amount of gold that’s available for purchase is about 70 million ounces, which means you have a ratio of about six-and-a-half to one is amount of silver you can buy versus gold,” Eric Sprott said in a recent interview (per ETFDailyNews).

At current prices, that means investment demand needs to grow by $13.5 billion to keep silver prices where they are. That’s far less than the $120 billion gold prices will need to stay afloat.

Still, silver prices tend to follow gold prices as both metals act as stores of value during periods of inflation. The main indicator for whether or not gold and silver prices can keep up with supply then is the expectation of inflation, and expectations are a fickle thing.

As Dr. Walker pointed out last week, it’s probably not supply that gold and silver investors should be concerned about, but rather the possibility that the Federal Reserve might raise interest rates in an attempt to begin strengthening the dollar. That, he argues, could be the true “Black Swan” event we’ve all been worried about.

We’re not there yet, though. In fact, we just might see all-time record high gold and silver prices again before we ever see the interest rates rise. Check out our posts Silver prices setting up for 30-year high? and Why Eric Sprott believes silver prices will triple to $100 an ounce in 2012 for more.

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